Deck 12: Partnerships

Question 1

If there is no partnership agreement,the law requires that net incomes or losses are divided among partners in the ratio of their capital investments.

Answer 1

False

Question 2

If partners devote their time and services to their partnership,their salaries are expenses on the income statement.

Answer 2

False

Question 3

A partnership has unlimited life.

Answer 3

False

Question 4

Assets invested by a partner into a partnership remain the property of the individual partner.

Question 5

The equity section of the balance sheet of a partnership usually shows the individual capital account balance of each partner.

Question 6

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

Question 7

If the partners agree on a formula to share income and say nothing about losses,then the losses are shared equally.

Question 8

The withdrawal accounts of each partner are closed to retained earnings.

Question 9

In a limited partnership the general partner has unlimited liability.

Question 10

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

Question 11

Mutual agency means each partner can bind or commit the partnership to any contract within the scope of the partnership's business.

Question 12

The statement of changes in equity shows the beginning balance in retained earnings,plus investments,less partners' withdrawals,the income or loss,and the ending balance in retained earnings.

Question 13

Partners can transfer both assets and liabilities to a partnership.

Question 14

Salary and interest allowances are reported as expenses on a partnership income statement.

Question 15

In order to buy into an existing partnership,the new partner must contribute cash.

Question 16

The partnership agreement gives Tsang 60% and Breck 40% of partnership incomes or losses.The partnership had a net loss of $27,000.Tsang's share of the loss was $16,200.Breck's share was $10,800.

Question 17

In closing the partnership accounts at the end of a period,the partners' capital accounts are credited for their share of the net loss or debited for their share of the net income.

Question 18

When a partner leaves a partnership,the partnership ends,but the business can still continue to operate.

Question 19

Partners' withdrawals are credited to their withdrawals accounts.

Question 20

In the absence of a partnership agreement,the law says that income of a partnership will be shared equally by the partners.

Question 21

Disadvantages of a partnership include:

A) Limited life.
B) Mutual agency.
C) Unlimited liability.
D) Co-ownership of property.
E) All of these answers are correct.

Question 22

When a partnership is liquidated,the business ends.

Question 23

If at the time of partnership liquidation,Breck has a $5,000 capital deficiency and pays the partnership $5,000 to cover the deficiency,then Breck is entitled to share in the final distribution of cash.

Question 24

Collins and Farina are forming a partnership.Collins is investing a building that has a fair market value of $70,000.However,the building is subject to a $36,000 mortgage.Farina is investing $20,000 cash.The amount to be credited to Collins' capital account is:

A) $70,000.
B) $34,000.
C) $56,000.
D) $44,000.
E) $60,000.

Question 25

If a partner is unable to cover a deficiency and the other partners absorb the deficiency,then that partner is thus relieved of all liability.

Question 26

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

Question 27

Partners' withdrawals of assets are:

A) Credited to their withdrawals accounts.
B) Debited to their withdrawals accounts.
C) Credited to their capital accounts.
D) Debited to their capital accounts.
E) Debited to retained earnings.

Question 28

A partnership agreement is:

A) The legal relationship among the partners whereby each partner is an agent of the partnership and is able to bind the partnership to contracts within the apparent scope of the partnership's business.
B) The agreement between partners that sets forth the terms under which the affairs of a partnership will be conducted.
C) The legal relationship among general partners of a partnership that makes each general partner responsible for paying all the debts of the partnership if the other partners are unable to pay their shares.
D) The agreement that protects all the partners of a partnership from unlimited liability for the partnership debts.
E) An unincorporated association of two or more persons to carry on a business for profit as co-owners.

Question 29

When the current market value of a partnership is greater than the recorded amounts of equity,the partners usually require the new partner to pay a bonus for joining.

Question 30

A partnership designed to protect innocent partners from malpractice or negligence claims resulting from acts of another partner is a:

A) Partnership.
B) Limited partnership.
C) Limited liability partnership.
D) General partnership.
E) Limited liability company.

Question 31

Unlimited liability of partners is:

A) The agreement between partners that sets forth the terms under which the affairs of the partnership will be conducted.
B) In the absence of a contrary agreement,the legal responsibility of partners in a partnership to share all losses equally.
C) The legal relationship between partners in which all the partners must share liability for the partnership debts,but only up to the amount of their capital accounts.
D) The legal relationship among the partners whereby each partner is an agent of the partnership and is able to bind the partnership to contracts within the apparent scope of the partnership's business.
E) The legal relationship among general partners that makes each of them responsible for paying all the debts of the partnership if the other partners are unable to pay their shares.

Question 32

Partnership accounting:

A) Uses a capital account for each partner.
B) Uses a withdrawals account for each partner.
C) Allocates net income according to the partnership agreement.
D) Allocates net loss according to the partnership agreement.
E) All of these answers are correct.

Question 33

The legal relationship among the partners whereby each partner is an agent of the partnership and is able to bind the partnership to contracts within the apparent scope of the partnership's business is called:

A) Unlimited liability.
B) A partnership contract.
C) Mutual agency.
D) Preemptive right.
E) Voluntary association.

Question 34

When a partner leaves a partnership,the partnership ends.

Question 35

An unincorporated association of two or more persons to carry on a business for profit as co-owners is called a:

A) Partnership.
B) Proprietorship.
C) Partnership contract.
D) Mutual agency.
E) Divided authority.

Question 36

The fact that partnership assets are owned jointly by all partners is called:

A) Mutual agency.
B) Unlimited liability.
C) Co-ownership of property.
D) Limited partnership.
E) Sole proprietorship.

Question 37

A capital deficiency can arise from liquidation losses,excessive withdrawals,or recurring losses in prior periods.

Question 38

Chen and Wright are forming a partnership.Chen will invest a building that currently is being used by another business owned by Chen.The building has a fair market value of $65,000.Also,the partnership will assume responsibility for a $15,000 note secured by a mortgage on the building.Wright will invest $20,000 cash.On the books of the partnership,the amount to be recorded for the building and credit to Chen's capital account are:

A) $65,000 and $65,000.
B) $50,000 and $20,000.
C) $50,000 and $40,000.
D) $65,000 and $50,000.
E) $20,000 and $65,000.

Question 39

A capital deficiency exists when all partners have a credit balance in their capital accounts.

Question 40

Partnership accounting:

A) Is the same as accounting for a sole proprietorship.
B) Is the same as accounting for a corporation.
C) Is the same as accounting for a sole proprietorship,except that separate capital and withdrawal accounts are kept for each partner.
D) Is the same as accounting for a not-for profit organization.
E) None of these answers is correct.

Question 41

Marko,Billy,and Jellian are liquidating their partnership.They have no agreement for sharing profits and losses.The ending capital account balances are Marko,$13,000; Billy,$13,000; Jellian,($2,000).There is $24,000 in cash to be distributed to the partners.The journal entry to record the distribution should be:

A)

B)

C)

D)

E)

Question 42

When a new partner is added to a partnership:

A) The partnership ends.
B) The underlying business ends.
C) The underlying business continues.
D) The partnership continues.
E) The partnership ends,but the underlying business continues.

Question 43

A partner can withdraw from a partnership by:

A) Selling his/her interest to another person who pays for it in cash.
B) Selling his/her interest to another person who pays for it with non-cash assets.
C) Receiving cash or other assets of the partnership equal to the amount of his/her capital account.
D) Receiving cash or other assets of the partnership greater than the amount of his/her capital account.
E) All of these answers are correct.

Question 44

The withdrawals account of each partner is:

A) Credited when closed to his/her capital account.
B) Debited when closed to his/her capital account.
C) A permanent account and not closed.
D) Credited with his/her share of net income.
E) Debited with his/her share of net loss.

Question 45

In the absence of a partnership agreement,the law says income/loss sharing should be based on:

A) A fractional basis.
B) The ratio of capital investments.
C) Salary allowances.
D) Equal shares.
E) Interest allowances.

Question 46

Discuss the characteristics of partnerships and similar organizations.

Question 47

Alban and Thompson formed a partnership with capital contributions with a fair value of $25,000 and $45,000,respectively.Their partnership agreement calls for Alban to receive a $12,000 annual salary allowance.Also,each partner is to receive a share of earnings equal to a 10% return on capital investments.The remaining income or loss is to be divided equally.If the net income for the year is $48,000,then Alban and Thompson's respective shares are:

A) $14,000; $14,000.
B) $12,000; $16,000.
C) $20,000; $8,000.
D) $16,500; $11,500.
E) $29,000; $19,000.

Question 48

The TJR Partnership recorded the following journal entry: The transaction reflects:

A) Acceptance of a new partner who invests $20,000 and receives a $4,000 bonus.
B) Withdrawal of a partner who pays a $2,000 bonus to each of the other partners.
C) Addition of a partner who pays a bonus to each of the other partners.
D) Additional investment into the partnership by Tanner and Jackson.
E) Withdrawal of $2,000 each by Tanner and Jackson.

Question 49

A bonus may be paid:

A) By a new partner when the current fair value of a partnership is greater than the recorded amounts of equity.
B) To a partner who provides services in excess of the salary allowance.
C) To an existing partner with exceptional talents.
D) By a new partner when the current fair value of a partnership is less than the recorded amounts of equity.
E) All of these answers are correct.

Question 50

When a partner is unable to pay a capital deficiency:

A) The partner must take out a loan to cover the deficiency.
B) The deficiency is absorbed by the remaining partners.
C) The partnership ends.
D) The deficient partner has a personal liability to the other partners.
E) The deficiency is absorbed by the remaining partners and the deficient partner has a personal liability to the other partners.

Question 51

Discuss the accounting issues involved in the admission or withdrawal of a partner from a partnership.

Question 52

Brian Tanner contributed $18,000 in cash plus office equipment with a fair value of $30,000 to the BT Partnership.In addition,the partnership assumed a $10,000 note payable.The journal entry to record the transaction is:

A)

B)

C)

D)

E)

Question 53

Rice,Hepburn,and DiMarco formed a partnership with Rice contributing $50,000,Hepburn contributing $30,000,and DiMarco contributing $20,000.Their partnership agreement called for the earnings division to be based on the ratio of capital investments.If the partnership had a net income of $75,000 for its first year of operation,how much would be credited to DiMarco's capital account?

A) $10,000.
B) $15,000.
C) $20,000.
D) $30,000.
E) $75,000.

Question 54

Nguyen invested $8,000 and Hansen invested $12,000 in a partnership.They agreed to share incomes and losses by allowing a $9,000 per year salary allowance to Nguyen and a $12,000 per year salary allowance to Hansen,plus interest on the partners' investments at 10%,with the balance to be shared equally.Under this agreement,the shares of the partners with a $51,000 net income are:

A) $10,500 to Nguyen; $10,500 to Hansen.
B) $9,000 to Nguyen; $12,000 to Hansen.
C) $26,000 to Nguyen; $25,000 to Hansen.
D) $23,800 to Nguyen; $27,200 to Hansen.
E) $14,500 to Nguyen; $35,500 to Hansen.

Question 55

If a partnership contract provides for interest at 10% annually on each partner's investment,the interest:

A) Is ignored when earnings are not sufficient to pay interest.
B) Provides for the sharing of a portion of the partnership earnings in the capital ratio.
C) Is an expense of the business.
D) Must be paid in cash.
E) Legally becomes a liability of the partnership.

Question 56

Explain the type of information needed to prepare journal entries to record the formation of a partnership.

Question 57

Explain the steps involved in the liquidation of a partnership.

Question 58

A capital deficiency means that:

A) The partnership has a loss.
B) The partnership has more liabilities than assets.
C) At least one partner has a debit balance in his/her capital account.
D) At least one partner has a credit balance in his/her capital account.
E) The partnership has been sold at a loss.

Question 59

When a partnership is liquidated:

A) The noncash assets are converted to cash.
B) Any gain or loss on liquidation is allocated to the partners' capital accounts.
C) The liabilities are paid.
D) The remaining cash is distributed to the partners.
E) All of these answers are correct.

Question 60

Discuss the options for the allocation of income and loss among partners.

Question 61

Lewis and Watson formed a partnership.Lewis contributed $15,000 cash and accounts receivable worth $13,000.Watson's investment included cash,$8,000; inventory,$9,000; and supplies,$1,000.(All values are current fair market values).Prepare the journal entry to record the formation of the partnership.

Question 62

With the consent of the other partners,Parker decides to sell one half of his $30,000 interest in the ABC Partnership to Lopez privately for $14,000.Prepare the journal entry to record the transaction.

Question 63

Armstrong plans to leave the JT Partnership.At this time her capital account is $48,000.The remaining partners,Tanner and Jackson,agree to pay Armstrong $58,000.Prepare the journal entry to record the withdrawal.Assume the partners have no agreement for sharing profits and losses.

Question 64

William and Christie form a partnership by investing $60,000 and $40,000 respectively.Their partnership agreement stipulates that William will receive an annual salary allowance of $6,000,and both partners will receive an interest allowance of 10% on their capital investment.Any net income remaining is to be allocated 60% to William,and 40% to Christie.Net income for their first year of operations is $40,000.Prepare the entry to close Income Summary.

Question 65

Gillian and Emily invested $90,000 and $130,000,respectively,in a partnership they began one year ago.Assuming the partnership's net income was $250,000 for this year,calculate the share of the net income each partner should receive under the following assumptions.
(1)The partnership agreement specifies a salary allowance of $50,000 to Gillian and $60,000 to Emily,and the balance shared equally.
(2)The partnership agreement specifies a salary allowance of $45,000 to Gillian and $60,000 to Emily,10% interest on their investments,and the balance shared equally.

Question 66

The life of a partnership is ____________________.

Question 67

The partners of the Blue Tooth Partnership agree to liquidate.After all liabilities of $100,000 are paid,the partnership's cash balance is $110,000,and the capital account balances are: Peters,$60,000; Winslow,$20,000; and Wong,$30,000.Prepare the journal entry to distribute the ending cash.

Question 68

Armstrong withdraws from the JT Partnership.At this time her capital account is $35,000.The remaining partners agree to pay her $35,000 for her interest.Prepare the journal entry to record the withdrawal.

Question 69

The partners of the Blue Tooth Partnership agree to liquidate.After all liabilities of $100,000 are paid,the capital account balances are: Wong,$80,000; Winslow,$70,000; and Peters,($4,000).Peters agrees to pay $4,000 in cash to settle his deficiency.Prepare the journal entries required to end the partnership.

Question 70

X,Y,and Z are partners with capital balances of $80,000,$40,000,and $40,000,respectively.Net income for the year is $30,000.Prepare the necessary journal entries to close Income Summary to the capital accounts if:
(a)The partners agree to divide income based on their beginning-of-year capital balances.
(b)The partners agree to divide income based on the ratio of 5:3:2,respectively.
(c)The partnership agreement is silent as to division of income.

Question 71

Marquis and Bose decide to accept Sherman into the partnership.Sherman will contribute $25,000 in cash,which will also be the amount to be credited to his capital account.Prepare the journal entry to record the transaction.

Question 72

The partners of the Blue Tooth Partnership agree to liquidate.After all liabilities of $100,000 are paid,the capital account balances are: Wong,$80,000; Winslow,$70,000; and Peters,($4,000).Peters is unable to pay his capital deficiency.Assume the partners have no agreement for sharing profits and losses.Prepare the journal entries required to end the partnership.

Question 73

On August 1,Jill Farety and Nicole Osilinsky decide to form a partnership.Of the following items shown below,Jill invested the assets and the partnership assumed the liabilities: Nicole invested $40,000 in cash and $25,000 in equipment.
Prepare two journal entries to record the partners' investments in the partnership.

Question 74

Mung and Long allow Kang to join their partnership for $50,000 cash.The recorded value of the equity being purchased is $40,000.Prepare the journal entry to record the admission of Kang to the partnership.Assume the partners have no agreement for sharing profits and losses.

Question 75

Armstrong is anxious to leave the JT Partnership.At this time her capital account is $48,000.The remaining partners,Tanner and Jackson,agree to pay Armstrong $40,000 in cash.Prepare the journal entry to record the withdrawal.Assume the partners have no agreement for sharing profits and losses.

Question 76

Zilky and Justin formed a partnership on December 31,2013.Zilky contributed $50,000 cash and accounts receivable with a fair market value of $10,000.Justin's investment consisted of: cash,$5,000; inventory,$34,000; and supplies,$1,000-all at fair market values.Net income for 2014 and 2015 was $50,000 and $65,000,respectively.
Calculate the allocation of net income for 2014 and 2015,assuming net incomes are divided as follows:
(A)The partners have no agreement.
(B)Based on a 1:3 ratio.
(C)Based on the ratio of the partners' original investments.
(D)Interest allowances of 10% on their original investments,salary allowances to Zilky of $14,000 and Justin of $11,000,and the remainder to be divided equally.

Question 77

Parker,Smith,and James form a partnership.Parker contributes $60,000 cash and Smith contributes $20,000 in cash.James contributes equipment with a fair value of $25,000.Prepare the journal entry to record the formation of the partnership.

Question 78

Kellan,Willa,and Sami are partners with capital balances of $90,000,$70,000,and $50,000,respectively.The partners agreed to share profits and losses as follows:
Salary allowances of $5,000 to Kellan,$10,000 to Willa,and $15,000 to Sami.
Interest allowances of 10% on beginning-of-year capital balances Balance to be divided equally.
If net income for the year is $170,000,calculate each partner's share and prepare the appropriate journal entry to close the Income Summary to the capital accounts.

Question 79

Zandusky invested $50,000 and Laurie invested $40,000 in a partnership and agreed to share income and losses by allowing a $5,000 annual salary allowance to Zandusky and a $6,000 annual salary allowance to Laurie.As well,each partner is to receive a share of net income equal to a 10% return on capital investments,and the balance is to be divided equally.Under this agreement,what are the shares of the partners if the partnership income is $65,000?

Question 80

Copote and Parsons formed a partnership with capital contributions of $60,000 and $90,000 respectively.Their partnership agreement called for Copote to receive a $12,000 annual salary allowance,and each partner to receive a share of net income equal to a 10% return on capital investments.The remaining income or loss is to be divided 40% to Copote and 60% to Parsons.If the net income for the year is $84,000,what are Copote's and Parson's respective shares?