Exam 12: Accounting for Partnerships

Kathleen Reilly and Ann Wolf decide to form a partnership on August 1. Reilly invested the following assets and liabilities in the new partnership: The note payable is associated with the building and the partnership will assume responsibility for the loan. Wolf invested $60,000 in cash and $105,000 in equipment in the new partnership. Prepare the journal entries to record the two partners' original investments in the new partnership.

On May 1, Fine and Max formed a partnership. Fine contributed cash of $90,000 and equipment valued at $152,000. Max contributed land valued at $120,000 and a building valued at $250,000. The partnership also assumed responsibility for Max's $110,000 long-term note payable associated with the land and building. The partners agreed to share income as follows: Fine is to receive a salary allowance of $38,000, both are to receive an annual interest allowance of 8% of their beginning-year capital investments, and any remaining income or loss is to be shared equally. During the year, Fine withdrew $40,000 and Max withdrew $42,000 cash. After the adjusting and closing entries are made to the revenue and expense accounts at the end of the year, the Income Summary account had a credit balance of $140,000. Prepare the journal entries to record (a) the partners' initial capital investments, (b) their cash withdrawals, and (c) closing of both the Withdrawals and Income Summary accounts.

The life of a partnership is ____________________ in duration.

In a limited partnership the general partner has unlimited liability.

Which of the following statements is ?

Match each of the following terms with the appropriate definitions.

If a partner withdraws from a partnership and the recorded value of his or her equity is overstated, then a bonus goes to ________________________; if the recorded value of the withdrawing partner's equity is understated, then a bonus goes to ____________________.

Groh and Jackson are partners. Groh's capital balance in the partnership is $64,000, and Jackson's capital balance $61,000. Groh and Jackson have agreed to share equally in income or loss. Groh and Jackson agree to accept Block with a 20% interest. Block will invest $35,000 in the partnership. The bonus that is granted to Groh and Jackson equals:

Jane, Castle, and Sean are partners who share income and loss in a 3:2:2 ratio. The partnership's capital balances are as follows: Jane, $332,000; Castle, $124,000; and Sean, $214,000. Sean decides to withdraw from the partnership, and the partners agree not to have the assets revalued upon Sean's retirement. Prepare journal entries to record Sean's withdrawal from the partnership under each of the following separate assumptions: Sean (a) sells his interest to Conner for $200,000 after Jane and Castle approve the entry of Conner as a partner; (b) is paid $214,000 in partnership cash for his equity; (c) is paid $205,000 in partnership cash for his equity; (d) is paid $220,000 in partnership cash for his equity.

___________________________ means that partners can commit or bind the partnership to any contract within the scope of the partnership business.

Holden, Phillips, and Rogers are partners with beginning-year capital balances of $120,000, $60,000, and $60,000, respectively. Partnership net income for the year is $84,000. Make the necessary journal entry to close Income Summary to the capital accounts if: a. Partners agree to divide income based on their beginning-year capital balances. b. Partners agree to divide income based on the ratio of 5:3:2 (Holden:Phillips:Rogers), respectively. c. Partnership agreement is silent as to division of income and less.

A partnership recorded the following journal entry: This entry reflects:

Nee High and Low Jack are partners in an accounting firm and share net income and loss equally. High's beginning partnership capital balance for the current year is $285,000, and Jack's beginning partnership capital balance for the current year is $370,000. The partnership had net income of $250,000 for the year. High withdrew $90,000 during the year and Jack withdrew $100,000. What is Jack's return on equity?

Partner return on equity is calculated as ___________________________.

Paul and Peggy's company is organized as a partnership. At the prior year-end, Paul's equity balance was $352,000 and Peggy's was $256,000. For the current year, partnership net income is $137,000 ($77,000 allocated to Paul and $60,000 allocated to Peggy); withdrawals are $87,000 ($45,000 for Paul and $42,000 for Peggy). Compute the total partnership return on equity and the individual partner return on equity ratios.

Arthur, Barnett, and Cummings form a partnership. Arthur contributes $250,000 cash and Barnett contributes $230,000 in cash. Cummings contributes equipment worth $255,000. Prepare the single journal entry to record the formation of this partnership.

Discuss the options for the allocation of income and loss among partners, including with and without a partnership agreement.

The following information is available on Stewart Enterprises, a partnership, for the most recent fiscal year: There are three partners in Stewart Enterprises: Stewart, Tedder and Armstrong. At the end of the year, the partners' capital accounts were in the ratio of 2:1:2, respectively. Compute the ending capital balances of the three partners.

What factors should be considered before establishing a partnership? What were some of the areas that the partners of Kids Konserve focused on before and after forming their partnership?

Jane, Castle, and Sean are dissolving their partnership. Their partnership agreement allocates each partner an equal share of all income and losses. The current period's ending capital account balances are Jane, $54,000; Castle, $42,000; and Sean, $(6,000). After all assets are sold and liabilities are paid, there is $90,000 in cash to be distributed. Sean is unable to pay the deficiency. The journal entry to record the distribution should be: