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Exam 16: Partnership Accounting

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Question 41

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

A) True
B) False

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Question 42

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

F) None of the above
G) C) and E)

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Question 43

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The withdrawals account of each partner is closed to income summary at the end of the accounting period.

Sharon and Nancy formed a partnership by making capital contributions of $130,000 and $195,000 respectively.They predict annual partnership income of $230,000 and are considering the following alternative plans of sharing income and loss: (a)in the ratio of their initial capital investments; or (b)salary allowances of $40,000 to Sharon and $35,000 to Nancy; interest allowances of 12% on their initial capital investments; and the balance shared equally.Assuming that both partners put about the same amount of time into the business,which method of allocating income would be best?

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.

Kramer and Jones allow Sanders to purchase a 25% interest in their partnership for $50,000 cash.Kramer and Jones both have capital balances of $55,000 each,and have agreed to share income and loss equally.Prepare the journal entry to record the admission of Sanders to the partnership.

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

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

The withdrawals account of each partner is:

The owners of a limited liability company (LLC),who are called members,are protected with the same limited liability feature as owners of corporations.

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 $60,000. -The balance in Paul's capital account immediately after his admission is:

Design Services is organized as a limited partnership,with Miko Toori as one of its partners.Miko's capital account began the year with a balance of $35,000.During the year,Miko's share of the partnership income was $7,500,and Miko received $4,000 in distributions from the partnership.What is Miko's partner return on equity?

The partnership agreement for Wilson,Pickett & Nelson,a general partnership,provided that profits be shared between the partners in the ratio of their financial contributions to the partnership.Wilson contributed $100,000,Pickett contributed $50,000 and Nelson contributed $50,000.In the partnership's first year of operation,it incurred a loss of $110,000.What amount of the partnership's loss,rounded to the nearest dollar,should be absorbed by Nelson?

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

Peters and Chong are partners and share equally in income or loss.Peters' current capital balance is $140,000 and Chong's is $130,000.Peters and Chong agree to accept Aaron with a 30% interest in the partnership -Aaron invests $98,000 in the partnership.The amount credited to Aaron's capital account is:

Bannister invested $110,000 and Wilder invested $99,000 in a new partnership.Their partnership agreement called for Wilder to receive a $70,000 annual salary allowance.They also agreed to an annual interest allowance of 5% on the partners' beginning-year capital balance,with the balance of income or loss to be divided equally.Under this agreement,what are the income or loss shares of the partners if the annual partnership income is $82,000?

Match each of the following terms with the appropriate definitions. -A partnership that protects innocent partners from malpractice or negligence claims resulting from the acts of another partner.

Mutual agency means

How are partners' investments in a partnership recorded?

Match each of the following terms with the appropriate definitions. -The legal relationship among general partners that makes each of them personally responsible for paying the debts of the partnership if the partnership cannot pay.