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Exam 12: Accounting for Partnerships

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Question 61

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Arthur, Barnett, and Cummings form a partnership. Arthur contributes $250,000 cash and Barnett contributes $230,000 in cash. Cummings contributes equipment worth $255,000. Prepare the single journal entry to record the formation of this partnership.

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Question 62

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Discuss the options for the allocation of income and loss among partners, including with and without a partnership agreement.

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In the absence of a partnership agreemen...

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Question 63

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The partnership agreement for Smith Wesson & Davis, a general partnership, provided that profits be shared between the partners in the ratio of their financial contributions to the partnership. Smith contributed $100,000, Wesson contributed $60,000 and Davis contributed $20,000. In the partnership's first year of operation, it incurred a loss of $210,000. What amount of the partnership's loss, rounded to the nearest dollar, should be absorbed by Smith?

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

If a partner withdraws from a partnership and the recorded value of his or her equity is overstated, then a bonus goes to ________________________; if the recorded value of the withdrawing partner's equity is understated, then a bonus goes to ____________________.

During the closing process, each partner's withdrawals account is closed to _______________.

Smith, West, and Krug form a partnership. Smith contributes $180,000, West contributes $150,000, and Krug contributes $270,000. Their partnership agreement calls for the income or loss division to be based on the ratio of capital invested. If the partnership reports income of $175,000 for its first year, what amount of income is credited to Smith's capital account?

Disadvantages of a partnership include:

Chase and Hatch are partners and share equally in income or loss. Chase's current capital balance is $135,000 and Hatch's is $120,000. Chase and Hatch agree to accept Flax with a 30% interest in the partnership. Flax invests $115,000 in the partnership. The balances in Chase's and Hatch's capital accounts after admission of the new partner equal:

A partnership that has at least two classes of partners, general and limited, allows the limited partners to have no personal liability beyond the amounts they invest in the partnership, and the limited partners have no active role except as specified in the partnership agreement is a ________________________ partnership.

Smith, West, and Krug form a partnership. Smith contributes $180,000, West contributes $150,000, and Krug contributes $270,000. Their partnership agreement calls for the income or loss division to be based on the ratio of capital invested. If the partnership reports income of $175,000 for its first year, what amount of income is credited to Krug's capital account?

Trump and Hawthorne have decided to form a partnership. Trump is going to contribute a depreciable asset to the partnership as his equity contribution to the partnership. The following information regarding the asset to be contributed by Trump is available: *will be assumed by the partnership Based on this information, Trump's beginning equity balance in the partnership will be:

Mutual agency implies that each partner in a partnership is a fully authorized agent of the partnership. Which of the following statements is correct regarding the authority of a partner to bind the partnership in dealings with third parties?

Assume that the S & B partnership agreement gave Steely 60% and Breck 40% of partnership income and losses. The partnership lost $27,000 in the current period. This implies that Steely's share of the loss equals $16,200, and Breck's share equals $10,800.

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:

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

When a partner leaves a partnership, the present partnership ends.

Chase and Hatch are partners and share equally in income or loss. Chase's current capital balance is $135,000 and Hatch's is $120,000. Chase and Hatch agree to accept Flax with a 30% interest in the partnership. Flax invests $115,000 in the partnership. The amount credited to Flax's capital account is:

Identify and discuss the key characteristics of partnerships. Also, identify other organizations that possess the positive aspects of both partnerships and corporations.

Summers and Winters formed a partnership on January 1. Summers contributed $90,000 cash and equipment with a market value of $60,000. Winters' investment consisted of: cash, $30,000; inventory, $20,000; all at market values. Partnership net income for year 1 and year 2 was $75,000 and $120,000, respectively. 1. Determine each partner's share of the net income for each year, assuming each of the following independent situations: (a) Income is divided based on the partners' failure to sign an agreement. (b) Income is divided based on a 2:1 ratio (Summers: Winters). (c) Income is divided based on the ratio of the partners' original capital investments. (d) Income is divided based on interest allowance of 12% on the original capital investments; salary allowance to Summers of $30,000 and Winters of $25,000; and the remainder to be divided equally. 2. Prepare the journal entry to record the allocation of the Year 1 income under alternative (d) above.