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Exam 12: Accounting for Partnerships

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Question 61

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

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Question 62

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A partner can be admitted into a partnership by ________________________ or by ___________________________.

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Purchasing an intere...

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Question 63

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Assets invested by a partner into a partnership remain the property of the individual partner.

Badger and Fox are forming a partnership. Badger invests a building that has a market value of $350,000; the partnership assumes responsibility for a $125,000 note secured by a mortgage on the property. Fox invests $100,000 in cash and equipment that has a market value of $75,000. For the partnership, the amounts recorded for total assets and for total capital account are:

A partnership in which all partners have mutual agency and unlimited liability is called:

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

The withdrawals account of each partner is closed to retained earnings at the end of the accounting period.

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.

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

Partners' withdrawals are credited to their separate withdrawals accounts.

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

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

Explain the steps involved in the liquidation of a partnership.

Armstrong plans to leave the FAP Partnership. The recorded balance in her capital account is $48,000. The remaining partners, Peters and Floyd, agree to pay Armstrong $58,000 cash and Armstrong accepts. The partners share income and loss equally. Prepare the journal entry to record the transaction.

Chase and Hatch are partners and share equally in income or loss. Chase's current capital balance is $135,000 and Hatch's is $120,000. Chase and Hatch agree to accept Flax with a 30% interest in the partnership. Flax invests $115,000 in the partnership. The balances in Chase's and Hatch's capital accounts after admission of the new partner equal:

Sam and Dave's company is organized as a partnership. At the prior year-end, Sam's equity balance was $258,000 and Dave's was $212,000. For the current year, partnership net income is $125,000 ($75,000 allocated to Sam and $50,000 allocated to Dave); withdrawals are $77,000 ($40,000 for Sam and $37,000 for Dave). Compute the total partnership return on equity and the individual partner return on equity ratios.

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 _____________________________.

Nguyen invested $100,000 and Hansen invested $200,000 in a partnership. They agreed to share incomes and losses by allowing a $60,000 per year salary allowance to Nguyen and a $40,000 per year salary allowance to Hansen, plus an interest allowance on the partners' beginning-year capital investments at 10%, with the balance to be shared equally. Under this agreement, the shares of the partners when the partnership earns $105,000 in income 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 and Armstrong accepts. The partners share income and loss equally. Prepare the general journal entry to record the withdrawal from the partnership.

Basketball Products LP is organized as a limited partnership that sells sporting equipment. Information related to the two partner's 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?