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Exam 16: Partnership Accounting

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Question 21

True/False

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

A) True
B) False

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Question 22

Multiple Choice

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Peters and Chong are partners and share equally in income or loss. Peters' current capital balance is $140,000 and Chong's is $130,000. Peters and Chong agree to accept Aaron with a 30% interest in the partnership. Aaron invests $98,000 in the partnership. The amount credited to Aaron's capital account is:

A) $81,000.
B) $102,600.
C) $110,400.
D) $98,000.
E) $114,533.

F) B) and E)
G) A) and C)

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Question 23

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Wheadon, Davis, and Singer formed a partnership with Wheadon contributing $60,000, Davis contributing $50,000 and Singer contributing $40,000. Their partnership agreement called for the income (loss) division to be based on the ratio of capital investments. If the partnership had income of $75,000 for its first year of operation, what amount of income (rounded to the nearest thousand) would be credited to Wheadon's capital account?

Bannister invested $110,000 and Wilder invested $99,500 in a new partnership. They agreed to an annual interest allowance of 10% on the partners' beginning-year capital balance, with the balance of income or loss to be divided equally. Under this agreement, what are the income or loss shares of the partners if the annual partnership income is $202,000?

How are partners' investments in a partnership recorded?

Certain corporations with 100 or fewer stockholders can elect to be treated as a partnership for income tax purposes. These corporations are called Subchapter S or simply S corporations.

The Redtail Partnership agrees to dissolve. The cash balance after selling all assets and paying all liabilities is $56,000. The final capital account balances are: Paulson, $33,000; Gray, $27,000; and Chang, ($4,000). Chang 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.

The following information is available regarding Grace Smit's capital account in Enterprise Consulting Group, a general partnership, for a recent year: Beginning of the year balance $22,000 Share of partnership income $ 8,500 Withdrawals made during the year $ 6,000 What is Smit's partner return on equity during the year in question?

Partners in a partnership are taxed on the partnership income, not the amounts they withdraw from the partnership.

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?

________ implies that each partner in a partnership can be called on to personally pay a partnership's debts.

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

Cinema Products LP is organized as a limited partnership that sells movie props. Information related to capital balances is given below. Compute the partner return on equity for each limited partner. How would each partner evaluate the success of the partnership? What would you recommend the partners do with respect to additional investments or withdrawals? Turner Kelly Total Capital balance, beginning of year 890,000 570,000 1,460,000 Net income for current year 85,000 65,000 150,000 Withdrawals for current year 40,000 25,000 65,000

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.

What are the ways that a new partner can be admitted to an existing partnership? Explain how to account for the admission of the new partner under each of these circumstances.

Mutual agency means

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 the income or loss division to be based on the ratio of capital invested. If the partnership reports income of $150,000 for its first year, what amount of income is credited to Lee's capital account? (Do not round your intermediate calculations.)

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:

Accounting procedures for both C corporations and S corporations are the same in all aspects.

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?