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Exam 12: Accounting for Partnerships

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Question 1

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When a partner leaves a partnership, the withdrawing partner is entitled to a bonus if the recorded equity is overstated.

A) True
B) False

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Question 2

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The BlueFin Partnership agrees to dissolve. The cash balance after selling all assets and paying all liabilities is $60,000. The final capital account balances are: Smith, $35,000; Nagy, $29,000; and Russ, ($4,000). Russ is unable to pay the capital deficiency. Prepare the journal entries to record the transactions required to dissolve this partnership.

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Question 3

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Paco and Kate invested $99,000 and $126,000, respectively, in a partnership they began one year ago. Assuming the partnership earned $120,000 during the current year; compute the share of the net income each partner should receive under each of these independent assumptions.

David and Jeannie formed This & That as a limited liability company. Unless the member owners elect to be treated otherwise, the Internal Revenue Service will tax the LLC as:

When partners invest in a partnership, their capital accounts are credited for the amount invested.

Partners can invest both assets and liabilities into a partnership.

Badger and Fox are forming a partnership. Badger invests a building that has a market value of $350,000; the partnership assumes responsibility for a $125,000 note secured by a mortgage on the property. Fox invests $100,000 in cash and equipment that has a market value of $75,000. For the partnership, the amounts recorded for the building and for Badger's Capital account are:

A partnership cannot use salary allowances or interest allowances to allocate income and losses to the partners because these items are not reported on the partnership income statement.

Renee Jackson is a partner in Sports Promoters. Her beginning partnership capital balance for the current year is $55,000, and her ending partnership capital balance for the current year is $62,000. Her share of this year's partnership income was $5,250. What is her partner return on equity?

Suze and Bess formed the Suzy B Company by making capital contributions of $130,000 and $195,000 respectively. They predict annual partnership income of $230,000 and are considering the following alternative plans of sharing income and loss: (a) in the ratio of their initial capital investments; or (b) salary allowances of $40,000 to Suze and $35,000 to Bess; interest allowances of 12% on their initial capital investments; and the balance shared equally. Assuming that both partners put about the same amount of time into the business, which method of allocating income would be best?

The BlueFin Partnership agrees to dissolve. The remaining cash balance after liquidating partnership assets and liabilities is $60,000. The final capital account balances are: Smith, $30,000; Nagy, $20,000; and Russ, $10,000. Prepare the journal entry to distribute the remaining cash to the partners.

Jane and Castle are partners and share equally in income or loss. Jane's current capital balance is $140,000 and Castle's is $130,000. Jane and Castle agree to accept Sean with a 30% interest in the partnership. Sean invests $108,000 in the partnership. The amount credited to Sean's capital account is:

A _________________________ means that at least one partner has a debit balance in his/her capital account at the point of the final distribution of cash.

Sam, Bart, and Lex are dissolving their partnership. Their partnership agreement allocates each partner 1/3 of all income and losses. The current period's ending capital account balances are Sam, $45,000; Bart, $37,000; and Lex, $(5,000) . After all assets are sold and liabilities are paid, there is $77,000 in cash to be distributed. Lex is unable to pay the deficiency. The journal entry to record the distribution should be:

A capital deficiency means that:

Conley and Liu allow Lepley to purchase a 25% interest in their partnership for $50,000 cash. Conley and Liu both have capital balances of $55,000 each, and have agreed to share income and loss equally. Prepare the journal entry to record the admission of Lepley to the partnership.

A partnership designed to protect innocent partners from malpractice or negligence claims resulting from the acts of other partners is a ____________________________ partnership.

Jane, Castle, and Sean are partners who share income and loss in a 4:2:2 ratio. The partnership's capital balances are as follows: Jane, $292,000; Castle, $114,000; and Sean, $194,000. Conner is admitted to the partnership on March 1 with a 25% equity. Prepare the journal entries to record Conner's entry into the partnership under each of the following separate assumptions: Conner invests (a) $200,000; (b) $180,000; and (c) $240,000.

When a partnership is liquidated, its business is ended.

Alberts and Bartel are partners. On October 1, Alberts' capital balance is $75,000, and Bartel's capital balance is $125,000. With the partnership's approval, Bartel sells ½ of his partnership interest to Camero for $70,000. Prepare the journal entry to record this transaction in the partnership records.