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Exam 12: Accounting for Partnerships

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Question 1

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Forman and Berry are forming a partnership. Forman will invest a building that currently is being used by another business owned by Forman. The building has a market value of $80,000. Also, the partnership will assume responsibility for a $20,000 note secured by a mortgage on that building. Berry will invest $50,000 cash. For the partnership, the amounts to be recorded for the building and for Forman's Capital account are:

A) Building, $80,000 and Forman, Capital, $60,000.
B) Building, $60,000 and Forman, Capital, $60,000.
C) Building, $60,000 and Forman, Capital, $50,000.
D) Building, $60,000 and Forman, Capital, $80,000.
E) Building, $80,000 and Forman, Capital, $80,000.

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

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Question 2

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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?

A) 33.8%
B) 41.3%
C) 36.5%
D) 32.7%
E) 43.9%

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

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Question 3

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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.

When a partner is unable to pay a capital deficiency:

Cinema Products LP is organized as a limited partnership that sells movie props. Information related to the capital balances is given below. Compute the partnership return on equity. $\begin{array} { l r r r } & \text { Turner } & \text { Kelly } & \text { Total } \\\text { Capital balance, beginging of year } & 890,000 & 570,000 & 1,460,000 \\\text { Net income for current year } & 85,000 & 65,000 & 150,000 \\\text { Withdrawals for current year } & 40,000 & 25,000 & 65,000\end{array}$

In the absence of a partnership agreement, the law says that income (and loss) should be allocated based on:

T. Andrews contributed $14,000 in to the T & B Partnership. The journal entry to record the transaction for the partnership is:

A partnership recorded the following journal entry: $\begin{array} { | l | l | l | } \hline \text { Cash } & 60,000 & \\\hline \text { B. Founder, Capital } & 10,000 & \\\hline \text { R. Aqui, Capital } & 10,000 & \\\hline \text { H. Joiner, Capital } & & 80,000 \\\hline\end{array}$ This entry reflects:

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 __________.

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

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

Partner return on equity can be used by each partner to help decide whether additional investment or withdrawal of resources is best for that partner.

A partnership may allocate salary allowances to the partners reflecting the relative value of services provided.

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 $150,000 for its first year, what amount of income is credited to North's capital account?

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

A partnership has a limited life.

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 Atkins's return on equity?

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.

Partnership accounting is the same as accounting for:

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 Fontaine's Capital account and for Monroe's Capital account are: