Exam 16: Reporting and Analyzing Partnerships

In a limited partnership the general partner has unlimited liability.

Current partners usually require any new partner to pay a bonus for the privilege of joining when the current value of a partnership is greater than the recorded amounts of equity.

Fontaine and Monroe are forming a partnership. Fontaine invests a building that has a market value of $250,000; the partnership assumes responsibility for a $75,000 note secured by a mortgage on the property. Monroe invests $100,000 in cash and equipment that has a market value of $55,000. For the partnership, the amounts recorded for Fontaine's Capital account and for Monroe's Capital account are:

Henry, Luther, and Gage 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 Henry, $45,000; Luther, $37,000; and Gage, $(5,000). After all assets are sold and liabilities are paid, there is $77,000 in cash to be distributed. Gage is unable to pay the deficiency. What amount of cash will Gage receive upon liquidation?

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

Partner return on equity can be used by each partner to help decide whether additional investment or withdrawal of resources is best for that partner.

Samuel organized a limited partnership and is the only general partner. Francesca invested $25,000 in the partnership and was admitted as a limited partner with the understanding that she would receive 12% of the profits. After several unprofitable years, the partnership ceased business, at which time the partnership had liabilities $60,000 greater than its assets. How much money can the partnership creditors obtain from Francesca personally to satisfy the partnership debts?

A capital deficiency exists when at least one partner has a debit balance in his or her capital account at the point of final cash distribution during liquidation.