Exam 16: Accounting for Partnerships

Salary allowances are reported as salaries expense on a partnership income statement.

Partners' withdrawals of assets are:

S. Reising contributed $48,000 in cash plus equipment valued at $73,000 to the Reising Construction Partnership. The equipment had a book value of $65,000. The journal entry to record the transaction for the partnership would include a:

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.

Limited liability partnerships are designed to protect innocent partners from malpractice or negligence claims resulting from the acts of another partner.

Baldwin and Tanner formed a partnership. Baldwin's initial capital account balance was $125,000 and Tanner's was $105,000. They agreed to share income and loss as follows: Baldwin 40%, Tanner 60%. Income was $102,000 in year 1 and $150,000 in year 2. Assume they each withdrew $10,000 per year. Calculate the capital balances for Baldwin and Tanner at the end of year 2.

Collins and Farina are forming a partnership. Collins is investing a building that has a market value of $80,000 and a book value of $65,000. However, the building carries a $56,000 mortgage that will be assumed by the partnership. Farina is investing $20,000 cash. Total capital in the partnership will be:

A _____________________ is an unincorporated association of two or more people to pursue a business for profit as co-owners.

Juanita invested $100,000 and Jacque invested $95,000 in a new partnership. They agreed to a $50,000 annual salary allowance to Juanita and a $40,000 annual salary allowance to Jacque. They also agreed to an annual interest allowance of 10% on the partners' beginning-year capital balance, with the balance to be divided equally. Under this agreement, what are the income or loss shares of the partners if the annual partnership income is $102,000?

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.

Rice, Hepburn and DiMarco formed a partnership with Rice contributing $60,000, Hepburn contributing $50,000, and DiMarco contributing $40,000. Their partnership agreement called for the income (loss) division to be based on the ratio of capital investments. If the partnership had income of $75,000 for its first year of operation, what amount of income (rounded to the nearest dollar) would be credited to DiMarco's capital account?

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

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 loss.

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 the responsibility for the loan. Wolf invested $60,000 in cash and $105,000 in new equipment in the new partnership. Prepare the journal entries to record the two partner's original investments in the new partnership.

Collins and Farina are forming a partnership. Collins is investing a building that has a market value of $80,000. However, the building carries a $56,000 mortgage that will be assumed by the partnership. Farina is investing $20,000 cash. The balance of Collins' Capital account will be:

To buy into an existing partnership, the new partner must contribute cash.

Beard, Tanner, Williams are operating as a partnership. The capital account balances at December 31, 2013 are $254,000, $195,000 and $286,000 respectively. Record the entries for the following independent situations. a. The partners vote to admit Sturges. She is going to invest $150,000 for a 15% interest in the partnership. Profit and losses are split equally between the existing partners. b. Sturges agrees to buy 50% of Williams interest by paying him $150,000 directly. c. The partners need new ideas and agree to give Sturges a 20% interest in exchange for $150,000. Profits and losses are shared equally between the existing partners. d. Williams wants to retire and is willing to leave the partnership in exchange for $281,000. Profits and losses were shared on the ratio of 2:3:5.

Durango and Verde formed a partnership with capital contributions of $150,000 and $190,000, respectively. Their partnership agreement called for Durango to receive a $50,000 annual salary allowance. They also agreed to allow each partner a share of income equal to 10% of their initial capital investments. The remaining income or loss is to be divided equally. If the net income for the current year is $120,000, what are Durango's and Verde's respective shares?

Force and Zabala are partners. Force's capital balance in the partnership is $98,000 and Zabala 's capital balance is $53,000. Force and Zabala have agreed to share equally in income or loss. Force and Zabala agree to accept Burns with a 25% interest. Burns will invest $56,000 in the partnership. Which of the following statements is correct?

___________________________ implies that each partner in a partnership can be called on to pay a partnership's debts.