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Exam 12: Accounting for Partnerships

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Question 61

Multiple Choice

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

A) Limited liability partnership.
B) Limited partnership.
C) General partnership.
D) Partnership.
E) Unlimited liability company.

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

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Question 62

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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 Cox's capital account?

A) $36,000.
B) $45,000.
C) $64,286.
D) $60,000.
E) $50,000.

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

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Question 63

Multiple Choice

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In a partnership agreement, if the partners agreed to an interest allowance of 10% annually on each partner's investment, the interest allowance:

R. Stetson contributed $14,000 in cash plus office equipment valued at $7,000 to the SJ Partnership. The journal entry to record the transaction for the partnership is:

Explain the steps involved in the liquidation of a partnership.

Identify and discuss the key characteristics of partnerships. Also, identify other organizations that possess partnership characteristics.

Harvey and Quick have decided to form a partnership. Harvey is going to contribute a depreciable asset to the partnership as his equity contribution to the partnership. The following information regarding the asset to be contributed by Harvey is available: $\begin{array}{ll}\text { Historical cost of the asset } & \$ 76,000 \\\text { Accumulated depreciation on the asset } & \$ 40,000 \\\text { Note payable secured by the asset } & \$ 18,000 \\\text { Agreed-upon market value of the asset } & \$ 45,000\end{array}$ *will be assumed by the partnership Based on this information, Harvey's beginning equity balance in the partnership will be:

A capital deficiency means that:

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

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

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 Bloom's investment is:

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 ending equity?

Total partnership income is reported to the IRS on Form 1065.

A capital deficiency can arise from liquidation losses, excessive withdrawals before liquidation, or recurring losses in prior periods.

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. $\begin{array} { l r r r } & \text { Turner } & \text { Kelly } & \text { Total } \\\text { Capital balance, beginning of year } & 890,000 & 570,000 & 1,460,000 \\\text { Net income for current year } & 85,000 & 65,000 & 150,000 \\\text { Withdrawals for current year } & 40,000 & 25,000 & 65,000\end{array}$

The statement of changes in partners' equity shows the beginning balance in retained earnings, plus investments, less withdrawals, plus the income (or less the loss)and the ending balance in retained earnings.

Dalworth and Minor have decided to form a partnership. Minor is going to contribute a depreciable asset to the partnership as her equity contribution to the partnership. The following information regarding the asset to be contributed by Minor is available: $\begin{array} { l } \text { Historical cost of the asset}&\$276,000 \\ \text { Accumulated depreciation on the asset}&\$ 140,000\\ \text { Note payable secured by the asset and assumed by the partnership}&\$180,000 \\ \text { Agreed-upon market value of the asset}&\$ 245,000\\\end{array}$ Based on this information, Minor's beginning equity balance in the partnership will be:

Brown invested $200,000 and Freeman invested $150,000 in a partnership. They agreed to 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 $205,000 in income are:

Admitting a partner by accepting assets is a personal transaction between one or more current partners and the new partner.

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.