Exam 15: Partnerships: Formation, Operation, and Changes in Membership

Note: This is a Kaplan CPA Review Question On June 30, the balance sheet for the partnership of Williams, Brown and Lowe, together with their respective profit and loss ratios, was as follows: Williams has decided to retire from the partnership and by mutual agreement the assets are to be adjusted to their fair value of $360,000 at June 30. It was agreed that the partnership would pay Williams $102,000 cash for his partnership interest exclusive of his loan which is to be repaid in full. No goodwill is to be recorded in this transaction. After William's retirement, and before the loan is repaid, what are the capital account balances of Brown and Lowe, respectively?

A partner's tax basis in a partnership is comprised of which of the following items? I. The partner's tax basis of assets contributed to the partnership. II. The amount of the partner's liabilities assumed by the other partners. III. The partner's share of other partners' liabilities assumed by the partnership.

Which of the following statements best describes limited partnerships?

Note: This is a Kaplan CPA Review Question Roberts and Smith drafted a partnership agreement that lists the following assets contributed at the partnership's formation: The building is subject to a mortgage of $10,000, which the partnership has assumed. The partnership agreement also specifies that profits and losses are to be distributed evenly. What amounts should be recorded as capital for Roberts and Smith at the formation of the partnership?

A limited liability company (LLC): I. is governed by the laws of the state in which it is formed. II. provides liability protection to its investors. III. does not offer pass-through taxation benefits of partnerships.

When the old partners receive a bonus upon admission of a new partner into a partnership, the bonus is allocated to: I. all the partners in their profit and loss sharing ratio. II. the existing partners in their profit and loss sharing ratio.

In the AD partnership, Allen's capital is $140,000 and Daniel's is $40,000 and they share income in a 3:1 ratio, respectively. They decide to admit David to the partnership. Each of the following question is independent of the others. Refer to the information provided above. David invests $40,000 for a one-fifth interest in the total capital of $220,000. The journal to record David's admission into the partnership will include:

The terms of a partnership agreement provide that one of the partners is to receive a salary allowance of $30,000, plus a bonus of 20 percent of income after deduction of the bonus and the salary allowance. If income is $150,000, the bonus should be:

In the AD partnership, Allen's capital is $140,000 and Daniel's is $40,000 and they share income in a 3:1 ratio, respectively. They decide to admit David to the partnership. Each of the following question is independent of the others. Refer to the information provided above. David directly purchases a one-fifth interest by paying Allen $34,000 and Daniel $10,000. The land account is increased before David is admitted. By what amount is the land account increased?

Jones and Smith formed a partnership with each partner contributing the following items: Assume that for tax purposes Jones and Smith agree to share equally in the liabilities assumed by the Jones and Smith partnership. Refer to the above information. What is the balance in each partner's capital account for financial accounting purposes?

In the RST partnership, Ron's capital is $80,000, Stella's is $75,000, and Tiffany's is $50,000. They share income in a 3:2:1 ratio, respectively. Tiffany is retiring from the partnership. Each of the following question is independent of the others. Refer to the above information. Tiffany is paid $60,000, and no goodwill is recorded. In the journal entry to record Tiffany's withdrawal:

Note: This is a Kaplan CPA Review Question James Dixon, a partner in an accounting firm, decided to withdraw from the partnership. Dixon's share of the partnership profits and losses was 20%. Upon withdrawing from the partnership he was paid $74,000 in final settlement for his interest. The total of the partners' capital accounts before recognition of partnership goodwill prior to Dixon's withdrawal was $210,000. After his withdrawal the remaining partners' capital accounts, excluding their share of goodwill, totaled $160,000. The total agreed upon goodwill of the firm was

Transferable interest of a partner includes all of the following except:

Net income for Levin-Tom partnership for 2009 was $125,000. Levin and Tom have agreed to distribute partnership net income according to the following plan: Additional Information for 2009 follows: 1. Levin began the year with a capital balance of $75,000. 2. Tom began the year with a capital balance of $100,000. 3. On March 1, Levin invested an additional $25,000 into the partnership. 4. On October 1, Tom invested an additional $20,000 into the partnership. 5. Throughout 2009, each partner withdrew $200 per week in anticipation of partnership net income. The partners agreed that these withdrawals are not to be included in the computation of average capital balances for purposes of income distributions. Required: a. Prepare a schedule that discloses the distribution of partnership net income for 2009. Show supporting computations in good form. b. Prepare the statement of partners' capital at December 31, 2009. c. How would your answer to part a change if all of the provisions of the income distribution plan were the same except that the salaries were $45,000 to Levin and $60,000 to Jack?

In the AD partnership, Allen's capital is $140,000 and Daniel's is $40,000 and they share income in a 3:1 ratio, respectively. They decide to admit David to the partnership. Each of the following question is independent of the others. Refer to the information provided above. What amount will David have to invest to give him one-fifth percent interest in the capital of the partnership if no goodwill or bonus is recorded?