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Exam 12: Accounting for Partnerships

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Question 71

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Which of the following statements is true?

A) Salaries to partners are expenses on the partnership income statement.
B) Interest allowances are expenses.
C) Salary allowances are expenses.
D) Partners are employees of the partnership.
E) Salary allowances usually reflect the relative value of services provided by partners.

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

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Question 72

Multiple Choice

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Zheng invested $100,000 and Murray invested $200,000 in a partnership. They agreed to share incomes and losses by allowing a $60,000 per year salary allowance to Zheng and a $40,000 per year salary allowance to Murray, plus an interest allowance on the partners' beginning-year capital investments at 10%, with the balance to be shared equally. - Assuming net income for the current year is $105,000, the journal entry to allocate net income is:

A) Debit Income Summary, $105,000; Credit Zheng, Capital, $52,500, Credit Murray, Capital, $52,500.
B) Debit Zheng, Capital, $57,500, Debit Murray, Capital, $47,500; Credit Income Summary, $105,000;
C) Debit Income Summary, $105,000; Credit Zheng, Capital, $35,000, Credit Murray, Capital, $70,000.
D) Debit Income Summary, $105,000; Credit Zheng, Capital, $57,500, Credit Murray, Capital, $47,500.
E) Debit Income Summary, $105,000; Credit Zheng, Capital, $42,500, Credit Murray, Capital, $62,500.

F) A) and E)
G) A) and D)

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Question 73

Multiple Choice

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Partnership accounting does not:

When a partner invests in a partnership, his/her capital account is ________ for the invested amount.

Caitlin, Chris, and Molly are partners and share income and losses in a 3:4:3 ratio. The partnership's capital balances are Caitlin, $120,000; Chris, $80,000; and Molly, $100,000. Paul is admitted to the partnership on July 1 with a 20% equity and invests $160,000. -The balance in Caitlin's capital account immediately after Paul's admission is:

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 total assets and for total capital account are:

Sharon and Nancy formed a partnership by making capital contributions of $130,000 and $195,000 respectively. The annual partnership income of $230,000 is to be allocated assuming a salary allowance of $40,000 to Sharon and $35,000 to Nancy; interest allowances of 12% on their initial capital investments; and the balance shared equally. Prepare the entries to record the initial capital investments, the allocation of net income, and close the partner's withdrawal accounts assuming that Sharon withdrew $50,000 and Nancy withdrew $45,000.

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:

When a partnership is liquidated, its business is ended.

Partners are taxed on their withdrawals, not on their share of partnership income.

A partner can be admitted into a partnership by ________ or by ________.

Explain the steps involved in the liquidation of a partnership.

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

Current partners usually require any new partner to pay a bonus for the privilege of joining when the current value of a partnership is greater than the recorded amounts of equity.

Olivia Greer is a partner in Made for You. An analysis of Greer's capital account indicates that during the most recent year, she withdrew $30,000 from the partnership. Her share of the partnership's net loss was $16,000 and she made an additional equity contribution of $10,000. Her capital account ended the year at $150,000. What was her capital balance at the beginning of the year?

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

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

The equity section of the balance sheet of a partnership can report the separate capital account balances of each partner.

Peters, Chong, and Aaron are dissolving their partnership. Their partnership agreement allocates each partner an equal share of all income and losses. The current period's ending capital account balances are Peters, $54,000; Chong, $42,000; and Aaron, $(2,000) . After all assets are sold and liabilities are paid, there is $94,000 in cash to be distributed. Aaron is unable to pay the deficiency. The journal entry to record the distribution should be:

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