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Exam 12: Accounting for Partnerships

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Question 31

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A partnership has a limited life.

A) True
B) False

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Question 32

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Bloom and Plant organize a partnership on January 1. Bloom's initial investment consists of $800 cash, $1,700 equipment and a $500 note payable reflecting a bank loan for the new business. Plant's initial investment is cash of $2,000. These amounts are the values agreed on by both partners. The journal entry to record Plant's investment is:

A) Debit Cash $2,500; credit Note Payable $500; credit Plant, Capital $2,500.
B) Debit Cash $1,500; debit Note Payable $500; credit Plant, Capital $2,000.
C) Debit Cash $2,000; credit Note Payable $500, credit Plant, Capital $1,500.
D) Debit Cash $2,000; credit Plant, Capital $2,000.
E) Debit Bloom, Capital $2,000; credit Cash $2,000.

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

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Question 33

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Define the partner return on equity ratio and explain how a specific partner would use this ratio.

When a partnership is liquidated:

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:

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

Partnership accounting is the same as accounting for:

A Limited Liability Partnership (LLP)is designed to protect innocent partners from malpractice or negligence claims resulting from the acts of another partner.

To buy into an existing partnership, the new partner must contribute cash to the partnership.

Partners' withdrawals are debited to their separate withdrawals accounts.

In closing the accounts at the end of a period, the partners' capital accounts are credited for their share of the partnership net income or debited for their share of the partnership loss.

Salary allowances are reported as salaries expense on a partnership income statement.

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. What amount of cash will Gage receive upon liquidation?

The end of a partnership is referred to as its dissolution.

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

Wallace, Simpson, and Prince are partners and share income and losses in a 3:4:3 ratio. The partnership's capital balances are Wallace, $68,000; Simpson, $90,000; and Prince, $42,000. Royal is admitted to the partnership on July 1 with a 20% equity and invests $50,000. The partnership would record the admission of Royal into the partnership as:

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 Paul's capital account immediately after his admission is:

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. Under this agreement, the shares of the partners when the partnership earns $105,000 in income are:

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:

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: