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Exam 26: Accounting for Partnerships

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Question 51

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Admitting a partner into a partnership by accepting assets is a personal transaction between one or more current partners and the new partner.

A) True
B) False

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Question 52

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The BlueFin Partnership agrees to dissolve. The cash balance after selling all assets and paying all liabilities is $56,000. The final capital account balances are: Smith, $33,000; Nagy, $27,000; and Russ, ($4,000). Russ agrees to pay $4,000 cash from personal funds to settle his deficiency. Prepare the journal entries to record the transactions required to dissolve this partnership.

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Question 53

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A relatively new form of business organization that protects partners with limited liability, allows limited partners to assume an active management role and is taxed as a partnership is a ______________________________.

Which of the following statements is true?

Partners can invest both assets and liabilities into a partnership.

Mutual agency means

___________________________ means that partners can commit or bind the partnership to any contract within the scope of the partnership business.

A _________________________ means that at least one partner has a debit balance in his/her capital account at the point of the final distribution of cash.

Define the partner return on equity ratio and explain how a specific partner would use this ratio.

Disadvantages of a partnership include:

Brown and Rubix are partners. Brown's capital balance in the partnership is $73,000 and Rubix's capital balance is $62,000. Brown and Rubix have agreed to share equally in income or loss. Brown and Rubix agree to accept Cabela with a 20% interest. Cabela will invest $41,500 in the partnership. The bonus that is granted to Brown and Rubix equals:

A partnership recorded the following journal entry: This entry reflects:

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 market value of $90,000. Also, the partnership will assume responsibility for a $30,000 note secured by a mortgage on that building. Wright will invest $50,000 cash. For the partnership, the amounts to be recorded for the building and for Chen's Capital account are:

Partners' withdrawals are credited to their separate withdrawals accounts.

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.

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

Beard, Tanner, Williams are operating as a partnership. The capital account balances at December 31, 2010 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.

Shelby and Mortonson formed a partnership with capital contributions of $300,000 and $400,000, respectively. Their partnership agreement calls for Shelby to receive a $60,000 per year salary. Also, each partner is to receive an interest allowance equal to 10% of a partner's beginning capital investments. The remaining income or loss is to be divided equally. If the net income for the current year is $125,000, then Shelby and Mortonson's respective shares are:

Armstrong plans to leave the FAP Partnership. The recorded value of her capital account is $48,000. The remaining partners Floyd and Peters agree to pay Armstrong $40,000 cash. The partners have agreed to share income and loss equally. Prepare the general journal entry to record the withdrawal from the partnership.

When a partnership is liquidated, which of the following is not true?