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Exam 12: Accounting for Partnerships

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Question 41

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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 the building and for Fontaine's Capital account are:

A) Building $250,000;Fontaine,Capital $250,000.
B) Building $175,000;Fontaine,Capital $175,000.
C) Building $250,000;Fontaine,Capital $75,000.
D) Building $250,000;Fontaine,Capital $175,000.
E) Building $175,000;Fontaine,Capital $75,000.

F) None of the above
G) All of the above

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Question 42

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Pat and Nicole formed Here & There as a limited liability company.Unless the member owners elect to be treated otherwise,the Internal Revenue Service will tax the LLC as:

A) An S corporation.
B) A C corporation.
C) A non-taxable entity.
D) A joint venture.
E) A partnership.

F) All of the above
G) A) and E)

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Question 43

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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.The journal entry to record the distribution should be:

Maxwell and Smart are forming a partnership.Maxwell is investing a building that has a market value of $180,000.However,the building carries a $56,000 mortgage that will be assumed by the partnership.Smart is investing $120,000 cash.The balance of Maxwell's Capital account will be:

Even if partners devote their time and services to their partnership,their salaries are not expenses on the income statement.

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

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

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

A bonus may be paid in all of the following situations except:

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

Sharon and Nancy formed a partnership by making capital contributions of $130,000 and $195,000 respectively.They predict annual partnership income of $230,000 and are considering the following alternative plans of sharing income and loss: (a)in the ratio of their initial capital investments;or (b)salary allowances of $40,000 to Sharon and $35,000 to Nancy;interest allowances of 12% on their initial capital investments;and the balance shared equally.Assuming that both partners put about the same amount of time into the business,which method of allocating income would be best?

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

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?

If partners agree on how to share income,but say nothing about losses,then losses are shared ___________________.

Christie and Jergens formed a partnership with capital contributions of $300,000 and $400,000,respectively.Their partnership agreement calls for Christie 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 $135,000,then Christie and Jergens's respective shares are:

Cox,North,and Lee form a partnership.Cox contributes $180,000,North contributes $150,000,and Lee contributes $270,000.Their partnership agreement calls for a 5% interest allowance on the partner's capital balances with the remaining income or loss to be allocated equally.If the partnership reports income of $174,000 for its first year,what amount of income is credited to Lee's capital account?

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

Harvey and Quick have decided to form a partnership.Harvey 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 Harvey is available: Based on this information,Harvey's beginning equity balance in the partnership will be:

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

Barber and Atkins are partners in an accounting firm and share net income and loss equally.Barber's beginning partnership capital balance for the current year is $285,000,and Atkins' beginning partnership capital balance for the current year is $370,000.The partnership had net income of $250,000 for the year.Barber withdrew $90,000 during the year and Atkins withdrew $100,000.What is Barber's return on equity?