Chapter 12 Accounting for Partnerships

MULTIPLE CHOICE QUESTIONS

A partnership has a limited life.

• 1. True
  2. False

Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations. Bloom's: Remember

AACSB: Communication

AICPA: BB Legal; FN Decision Making

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

True

• 1. False

Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations. Bloom's: Remember

AACSB: Communication

AICPA: BB Legal; FN Decision Making

When a new partner is admitted, all parties usually must agree to the admission.

• 1. True
  2. False

Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations. Bloom's: Remember

AACSB: Communication

AICPA: BB Legal; FN Decision Making

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

• 1. True
  2. False

Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations. Bloom's: Remember

AACSB: Communication

AICPA: BB Legal; FN Decision Making

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

• 1. True
  2. False

Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations. Bloom's: Remember

AACSB: Communication

AICPA: BB Legal; FN Decision Making

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

• 1. True
  2. False

Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations. Bloom's: Remember

AACSB: Communication

AICPA: BB Legal; FN Decision Making

1. The income or loss of a partnership is allocated to the partners according to the partnership agreement, and it is included in determining the taxable income for each partner's tax return.

True

• 1. False

Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations. Bloom's: Remember

AACSB: Communication

AICPA: BB Legal; FN Decision Making

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

True

• 1. False

Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations. Bloom's: Remember

AACSB: Communication

AICPA: BB Legal; FN Decision Making

Accounting procedures for both C corporations and S corporations are the same in all aspects.

• 1. True
  2. False

Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations. Bloom's: Remember

AACSB: Communication

AICPA: BB Legal; FN Decision Making

1. Partners in a partnership are taxed on the partnership income, not the amounts they withdraw from the partnership.

True

• 1. False

Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations. Bloom's: Understand

AACSB: Communication

AICPA: BB Legal; FN Decision Making

1. Limited liability partnerships are designed to protect innocent partners from malpractice or negligence claims resulting from the acts of another partner.

True

• 1. False

Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations. Bloom's: Remember

AACSB: Communication

AICPA: BB Legal; FN Decision Making

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

True

• 1. False

Learning Objective: 12-P2 Allocate and record income and loss among partners. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Measurement

In a limited partnership the general partner has unlimited liability.

• 1. True
  2. False

Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations. Bloom's: Remember

AACSB: Communication

AICPA: BB Legal; FN Decision Making

1. Partner return on equity can be used by each partner to help decide whether additional investment or withdrawal of resources is best for that partner.

True

• 1. False

Learning Objective: 12-A1 Compute partner return on equity and use it to evaluate partnership performance. Bloom's: Remember

AACSB: Communication

AICPA: BB Resource Management; FN Risk Analysis

1. Feldt is a partner in Feldt & Dodson Company. Feldt's share of the partnership income is $18,600 and her average partnership equity is $155,000. Her partner return on equity equals 8.33.

True

• 1. False

Learning Objective: 12-A1 Compute partner return on equity and use it to evaluate partnership performance. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Risk Analysis

When partners invest in a partnership, their capital accounts are debited for the amount invested.

• 1. True
  2. False

Learning Objective: 12-P1 Prepare entries for partnership formation. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Measurement

Partners' withdrawals are debited to their separate withdrawals accounts.

• 1. True
  2. False

Learning Objective: 12-P1 Prepare entries for partnership formation. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Measurement

Partners can invest assets but not liabilities into a partnership.

• 1. True
  2. False

Learning Objective: 12-P1 Prepare entries for partnership formation. Bloom's: Remember

AACSB: Communication

AICPA: FN Decision Making; BB Industry

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

True

• 1. False

Learning Objective: 12-P1 Prepare entries for partnership formation. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Measurement

1. Certain corporations with 100 or fewer stockholders can elect to be treated as a partnership for income tax purposes. These corporations are called Subchapter S or simply S corporations.

True

• 1. False

Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Measurement

In a Limited Partnership, there must be more than one general partner.

• 1. True
  2. False

Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Measurement

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

True

• 1. False

Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Measurement

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

True

• 1. False

Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Measurement

1. 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.

True

• 1. False

Learning Objective: 12-P1 Prepare entries for partnership formation. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Measurement

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

True

• 1. False

Learning Objective: 12-P2 Allocate and record income and loss among partners. Bloom's: Remember

AACSB: Communication

AICPA: BB Legal; BB Industry; FN Measurement

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

• 1. True
  2. False

Learning Objective: 12-P2 Allocate and record income and loss among partners. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Measurement

1. 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.

True

• 1. False

Learning Objective: 12-P2 Allocate and record income and loss among partners. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Reporting

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

True

• 1. False

Learning Objective: 12-P2 Allocate and record income and loss among partners. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Reporting

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

True

• 1. False

Learning Objective: 12-P2 Allocate and record income and loss among partners. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Reporting

1. If the partners agree on a formula to share income and say nothing about losses, then the losses are shared using the same formula.

True

• 1. False

Learning Objective: 12-P2 Allocate and record income and loss among partners. Bloom's: Remember

AACSB: Communication

AICPA: BB Legal; BB Industry; FN Measurement

1. 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.

True

• 1. False

Learning Objective: 12-P2 Allocate and record income and loss among partners. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Legal; BB Industry; FN Measurement

When a partner leaves a partnership, the present partnership ends.

• 1. True
  2. False

Learning Objective: 12-P3 Account for the admission of partners. Bloom's: Remember

AACSB: Communication

AICPA: BB Legal; FN Decision Making; BB Industry

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

• 1. True
  2. False

Learning Objective: 12-P3 Account for the admission of partners. Bloom's: Remember

AACSB: Communication

AICPA: BB Legal; FN Decision Making; BB Industry

1. When a partner leaves a partnership, the present partnership ends, but the business can still continue to operate.

True

• 1. False

Learning Objective: 12-P3 Account for the admission of partners. Bloom's: Remember

AACSB: Communication

AICPA: BB Legal; FN Decision Making; BB Industry

Assets invested by a partner into a partnership become the property of the business.

• 1. True
  2. False

Learning Objective: 12-P1 Prepare entries for partnership formation.; 12-P3 Account for the admission of partners. Bloom's: Remember

AACSB: Communication

AICPA: BB Legal; FN Decision Making; BB Industry

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

True

• 1. False

Learning Objective: 12-P3 Account for the admission of partners. Bloom's: Understand

AACSB: Communication

AICPA: BB Legal; FN Decision Making; BB Industry

1. 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.

True

• 1. False

Learning Objective: 12-P3 Account for the admission of partners. Bloom's: Understand

AACSB: Communication

AICPA: FN Decision Making; BB Industry

1. When a partner leaves a partnership, the withdrawing partner is entitled to a bonus if the recorded equity is overstated.

True

• 1. False

Learning Objective: 12-P3 Account for the admission of partners. Bloom's: Understand

AACSB: Communication

AICPA: FN Decision Making; BB Industry

When a partnership is liquidated, its business is ended.

• 1. True
  2. False

Learning Objective: 12-P4 Account for the withdrawal of partners. Bloom's: Remember

AACSB: Communication

AICPA: BB Legal; FN Decision Making; BB Industry

1. A capital deficiency exists when at least one partner has a debit balance in his or her capital account at the point of final cash distribution during liquidation.

True

• 1. False

Learning Objective: 12-P4 Account for the withdrawal of partners. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Measurement

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

True

• 1. False

Learning Objective: 12-P4 Account for the withdrawal of partners. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Measurement

1. If a partner is unable to cover a deficiency and the other partners absorb the deficiency, then the partner with the deficiency is thus relieved of all liability.

True

• 1. False

Learning Objective: 12-P4 Account for the withdrawal of partners. Bloom's: Remember

AACSB: Communication

AICPA: BB Legal; FN Decision Making; BB Industry

1. If at the time of partnership liquidation, a partner has a $5,000 capital deficiency and pays the partnership $5,000 out of personal assets to cover the deficiency, then that partner is entitled to share in the final distribution of cash.

True

• 1. False

Learning Objective: 12-P4 Account for the withdrawal of partners. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

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

Voluntary organization.

• 1. Mutual agency.
  2. Partnership.
  3. Proprietorship.
  4. Contractual company.

Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations. Bloom's: Remember

AACSB: Communication

AICPA: BB Legal; FN Decision Making; BB Industry

Advantages of a partnership include:

• 1. Tax-free designation of all income earned
  2. Limited life.
  3. Unlimited liability.
  4. Voluntary association.
  5. Mutual agency.

Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations. Bloom's: Remember

AACSB: Communication

AICPA: BB Legal; FN Decision Making; BB Industry

A partnership agreement:

• 1. Is also called the articles of incorporation.
  2. Does not generally address the issue of the rights and duties of the partners.
  3. Is the same as a limited liability partnership.
  4. Is not binding unless it is in writing.
  5. Is binding even if it is not in writing.

Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations. Bloom's: Remember

AACSB: Communication

AICPA: BB Legal; FN Decision Making; BB Industry

Mutual agency means

• 1. Partners are taxed on partnership withdrawals.
  2. All partners must agree before the partnership can act.
  3. A partner can commit or bind the partnership in any contract within the scope of the partnership business.

The partnership has a limited life.

• 1. Creditors can apply their claims to partners' personal assets.

Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations. Bloom's: Remember

AACSB: Communication

AICPA: BB Legal; FN Decision Making; BB Industry

1. A partnership that has two classes of partners, general and limited, where the limited partners have no personal liability beyond the amounts they invest in the partnership, and no active role in the partnership, except as specified in the partnership agreement is a:

Limited liability company.

• 1. Limited partnership.
  2. Mutual agency partnership.
  3. Limited liability partnership.
  4. General partnership.

Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations. Bloom's: Remember

AACSB: Communication

AICPA: BB Legal; FN Decision Making; BB Industry

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

Limited liability partnership.

• 1. Limited partnership.
  2. General partnership.
  3. Partnership.
  4. Unlimited liability company.

Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations. Bloom's: Remember

AACSB: Communication

AICPA: BB Legal; FN Decision Making; BB Industry

1. Mutual agency implies that each partner in a partnership is a fully authorized agent of the partnership. Which of the following statements is correct regarding the authority of a partner to bind the partnership in dealings with third parties?
   1. Only a partner with a majority interest in a partnership has the authority to represent the partnership to third parties.
   2. A partner has authority to deal with third parties on the behalf of the other partners only if he has written permission to do so.

The partner's authority must be derived from the partnership agreement.

• 1. The partner's authority may be effectively limited by a formal resolution of the other partners, even if third parties are not aware of that limitation.
  2. A partner may be able to legally bind the partnership to actions even if the other partners are unaware of his actions.

Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations. Bloom's: Understand

AACSB: Communication

AICPA: BB Legal; FN Decision Making; BB Industry

1. 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:

A joint venture.

• 1. An S corporation.
  2. A partnership.
  3. A C corporation.
  4. A non-taxable entity.

Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations. Bloom's: Understand

AACSB: Communication

AICPA: BB Legal; FN Decision Making; BB Industry

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

• 1. S corporation.
  2. Limited partnership.
  3. Limited liability company.
  4. Limited liability partnership.
  5. General partnership.

Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations. Bloom's: Remember

AACSB: Communication

AICPA: BB Legal; FN Decision Making; BB Industry

1. Carter Pearson is a partner in Event Promoters. His beginning partnership capital balance for the current year is $55,000, and his ending partnership capital balance for the current year is $62,000. His share of this year's partnership income was $6,250. What is his partner return on equity?

A) 5.34% B) 10.08% C) 10.68% D) 8.93% E) 11.36%

Learning Objective: 12-A1 Compute partner return on equity and use it to evaluate partnership performance. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Risk Analysis

1. 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?

A) 10.2% B) 22.7% C) 20.4% D) 21.4% E) 19.5%

Learning Objective: 12-A1 Compute partner return on equity and use it to evaluate partnership performance. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Risk Analysis

1. The following information is available regarding Grace Smit's capital account in Enterprise Consulting Group, a general partnership, for a recent year:

What is Smit's partner return on equity during the year in question?

A) 34.7% B) 55.7% C) 10.8% D) 36.6% E) 11.4%

Learning Objective: 12-A1 Compute partner return on equity and use it to evaluate partnership performance. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Risk Analysis

Partnership accounting does not:

• 1. Use a withdrawals account for each partner.
  2. Allocate net income to each partner according to the partnership agreement.
  3. Tax the business entity.
  4. Allocate net loss to each partner according to the partnership agreement.
  5. Use a capital account for each partner.

Learning Objective: 12-P1 Prepare entries for partnership formation. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Measurement

Partnership accounting is the same as accounting for:

• 1. A sole proprietorship, except that separate capital and withdrawal accounts are kept for each partner.

A sole proprietorship.

• 1. A corporation.
  2. A corporation, except that retained earnings is used to keep track of partners' withdrawals.
  3. An S corporation.

Learning Objective: 12-P1 Prepare entries for partnership formation. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Measurement

Partners' withdrawals of assets are:

• 1. Credited to their retained earnings.
  2. Debited to their asset accounts.
  3. Credited to their withdrawals accounts.
  4. Debited to their withdrawals accounts.
  5. Debited to their retained earnings.

Learning Objective: 12-P1 Prepare entries for partnership formation. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Measurement

The withdrawals account of each partner is:

• 1. A permanent account that is not closed.
  2. Credited with that partner's share of net income.
  3. Closed to that partner's capital account.
  4. Closed to the Income Summary account.
  5. Debited with that partner's share of net loss.

Learning Objective: 12-P1 Prepare entries for partnership formation. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Measurement

1. 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:

Debit R. Stetson, Capital $21,000; credit SJ Partnership, Capital $21,000.

• 1. Debit Cash $14,000; debit Office Equipment $7,000; credit SJ Partnership, Capital $21,000.
  2. Debit Cash $14,000; debit Office Equipment $7,000; credit Common Stock $21,000.
  3. Debit Cash $14,000; debit Office Equipment $7,000; credit R Stetson, Capital $21,000.
  4. Debit SJ Partnership $21,000; credit R. Stetson, Capital $21,000.

Learning Objective: 12-P1 Prepare entries for partnership formation. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. T. Andrews contributed $14,000 in to the T & B Partnership. The journal entry to record the transaction for the partnership is:

Debit T. Andrews, Capital $14,000; credit T & B Partnership, Capital $14,000.

• 1. Debit T & B Partnership $14,000; credit T. Andrews, Capital $14,000.
  2. Debit Cash $14,000; credit T. Andrews, Capital $14,000.
  3. Debit Cash $14,000; credit T & B Partnership, Capital $14,000.
  4. Debit Cash $14,000; credit Common Stock $14,000.

Learning Objective: 12-P1 Prepare entries for partnership formation. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Forman and Berry are forming a partnership. Forman will invest a building that currently is being used by another business owned by Forman. The building has a market value of $80,000. Also, the partnership will assume responsibility for a $20,000 note secured by a mortgage on that building. Berry will invest $50,000 cash. For the partnership, the amounts to be recorded for the building and for Forman's Capital account are:

Building, $80,000 and Forman, Capital, $60,000.

• 1. Building, $60,000 and Forman, Capital, $60,000.
  2. Building, $60,000 and Forman, Capital, $50,000.
  3. Building, $60,000 and Forman, Capital, $80,000.
  4. Building, $80,000 and Forman, Capital, $80,000.

Learning Objective: 12-P1 Prepare entries for partnership formation. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. 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:

A) $56,000. B) $180,000. C) $60,000. D) $64,000. E) $124,000.

Learning Objective: 12-P1 Prepare entries for partnership formation. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. 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:

*will be assumed by the partnership

Based on this information, Harvey's beginning equity balance in the partnership will be:

A) $36,000 B) $27,000 C) $45,000 D) $76,000 E) $18,000

Learning Objective: 12-P1 Prepare entries for partnership formation. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. 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:

Historical cost of the asset $276,000

Accumulated depreciation on the asset $140,000 Note payable secured by the asset and assumed by the partnership $118,000 Agreed-upon market value of the asset $245,000

Based on this information, Minor's beginning equity balance in the partnership will be:

A) $158,000 B) $136,000 C) $276,000 D) $18,000 E) $127,000

Learning Objective: 12-P1 Prepare entries for partnership formation. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. In the absence of a partnership agreement, the law says that income (and loss) should be allocated based on:

Interest allowances.

• 1. Equal shares.
  2. Salary allowances.
  3. The ratio of capital investments.
  4. A fractional basis.

Learning Objective: 12-P2 Allocate and record income and loss among partners. Bloom's: Remember

AACSB: Communication

AICPA: BB Legal; BB Industry; FN Measurement

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

Is ignored when earnings are not sufficient to pay interest.

• 1. Can make up for unequal capital contributions.
  2. Must be paid because the partnership contract has unlimited life.
  3. Legally becomes a liability of the general partner.
  4. Is an expense of the business.

Learning Objective: 12-P2 Allocate and record income and loss among partners. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Wheadon, Davis, and Singer formed a partnership with Wheadon contributing $60,000, Davis contributing $50,000 and Singer contributing $40,000. Their partnership agreement called for the income (loss) division to be based on the ratio of capital investments. If the partnership had income of $75,000 for its first year of operation, what amount of income (rounded to the nearest thousand) would be credited to Singer's capital account?

A) $75,000. B) $40,000. C) $25,000. D) $20,000. E) $30,000.

Learning Objective: 12-P2 Allocate and record income and loss among partners. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Wheadon, Davis, and Singer formed a partnership with Wheadon contributing $60,000, Davis contributing $50,000 and Singer contributing $40,000. Their partnership agreement called for the income (loss) division to be based on the ratio of capital investments. If the partnership had income of $75,000 for its first year of operation, what amount of income (rounded to the nearest thousand) would be credited to Wheadon's capital account?

A) $30,000. B) $40,000. C) $25,000. D) $20,000. E) $75,000.

Learning Objective: 12-P2 Allocate and record income and loss among partners. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. 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:

A) $35,000; $100,000. B) $90,000; $40,000. C) $57,857; $77,143. D) $67,500; $67,500. E) $92,500; $42,500.

Learning Objective: 12-P2 Allocate and record income and loss among partners. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Farmer and Taylor formed a partnership with capital contributions of $200,000 and $250,000, respectively. Their partnership agreement calls for Farmer to receive a $70,000 per year salary. The remaining income or loss is to be divided equally. If the net income for the current year is

$135,000, then Farmer and Taylor's respective shares are:

A) $90,000; $45,000. B) $106,140; $28,860. C) $67,500; $67,500. D) $102,500; $32,500. E) $130,000; $5,000.

Learning Objective: 12-P2 Allocate and record income and loss among partners. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Farmer and Taylor formed a partnership with capital contributions of $200,000 and $250,000, respectively. Their partnership agreement calls for Farmer to receive a $70,000 per year salary. The remaining income or loss is to be divided equally. Assuming net income for the current year is

$135,000, the journal entry to allocate net income is:

• 1. Debit Income Summary, $135,000; Credit Farmer, Capital, $106,140; Credit Taylor, Capital,

$28,860.

• 1. Debit Income Summary, $130,000; Credit Taylor, Capital, $102,500; Credit Farmer, Capital,

$32,500.

• 1. Debit Income Summary, $135,000; Credit Farmer, Capital, $102,500; Credit Taylor, Capital,

$32,500.

• 1. Debit Income Summary, $135,000; Credit Farmer, Capital, $67,500; Credit Taylor, Capital,

$67,500.

• 1. Debit Income Summary, $135,000; Credit Farmer, Capital, $130,000; Credit Taylor, Capital,

$5,000.

Learning Objective: 12-P2 Allocate and record income and loss among partners. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Farmer and Taylor formed a partnership with capital contributions of $200,000 and $250,000, respectively. Their partnership agreement calls for Farmer to receive a $70,000 per year salary. The remaining income or loss is to be divided equally. Assuming net loss for the current year is

$15,000, the journal entry to allocate the net loss is:

• 1. Debit Income Summary, $15,000; Credit Taylor, Capital, $7,500; Credit Farmer, Capital,

$7,500.

• 1. Debit Taylor, Capital, $42,500; Credit Income Summary, $15,000; Credit Farmer, Capital,

$27,500.

• 1. Debit Income Summary, $15,000; Debit Taylor, Capital, $27,500; Credit Taylor, Capital,

$32,500.

• 1. Debit Income Summary, $15,000; Debit Farmer, Capital, $27,500; Credit Taylor, Capital,

$42,500.

• 1. Debit Income Summary, $15,000; Credit Farmer, Capital, $7,500; Credit Taylor, Capital,

$7,500.

Learning Objective: 12-P2 Allocate and record income and loss among partners. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

Which of the following statements is true?

• 1. Salaries to partners are expenses on the partnership income statement.
  2. Interest allowances are expenses.
  3. Salary allowances are expenses.
  4. Partners are employees of the partnership.
  5. Salary allowances usually reflect the relative value of services provided by partners.

Learning Objective: 12-P2 Allocate and record income and loss among partners. Bloom's: Remember

AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

1. 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:

$70,000 to Zheng; $60,000 to Murray.

• 1. $35,000 to Zheng; $70,000 to Murray.
  2. $52,500 to Zheng; $52,500 to Murray.
  3. $57,500 to Zheng; $47,500 to Murray.
  4. $42,500 to Zheng; $62,500 to Murray.

Learning Objective: 12-P2 Allocate and record income and loss among partners. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. 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:
   1. Debit Income Summary, $105,000; Credit Zheng, Capital, $52,500, Credit Murray, Capital,

$52,500.

• 1. Debit Zheng, Capital, $57,500, Debit Murray, Capital, $47,500; Credit Income Summary,

$105,000;

• 1. Debit Income Summary, $105,000; Credit Zheng, Capital, $35,000, Credit Murray, Capital,

$70,000.

• 1. Debit Income Summary, $105,000; Credit Zheng, Capital, $57,500, Credit Murray, Capital,

$47,500.

• 1. Debit Income Summary, $105,000; Credit Zheng, Capital, $42,500, Credit Murray, Capital,

$62,500.

Learning Objective: 12-P2 Allocate and record income and loss among partners. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. 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:

$122,500 to Brown; $82,500 to Freeman.

• 1. $117,143 to Brown; $87,857 to Freeman.
  2. $105,000 to Brown; $100,000 to Freeman.
  3. $102,500 to Brown; $102,500 to Freeman.
  4. $112,750 to Brown; $92,250 to Freeman.

Learning Objective: 12-P2 Allocate and record income and loss among partners. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. 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?

A) $36,667 B) $40,000 C) $27,500 D) $0 E) $50,000

Learning Objective: 12-P2 Allocate and record income and loss among partners. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. 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?

A) $186,000 B) $196,000 C) $170,000 D) $180,000 E) $154,000

Learning Objective: 12-P2 Allocate and record income and loss among partners. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. The following information is available on TGR Enterprises, a partnership, for the most recent fiscal year:

Total partnership capital at beginning of the year $180,000 Partnership net income for the year $150,000

Withdrawals by partners during the year $120,000 Additional investments by partners during the year $ 60,000

There are three partners in TGR Enterprises: Tracey, Gregory and Rodgers. At the end of the year, the partners' capital accounts were in the ratio of 2:1:2, respectively. Compute the ending capital balances of the three partners.

A) Tracey = $84,000; Gregory = $102,000; Rodgers = $84,000. B) Tracey = $204,000; Gregory = $102,000; Rodgers = $204,000. C) Tracey = $60,000; Gregory = $30,000; Rodgers = $60,000.

D) Tracey = $90,000; Gregory = $90,000; Rodgers = $90,000. E) Tracey = $108,000; Gregory = $54,000; Rodgers = $108,000.

Learning Objective: 12-P2 Allocate and record income and loss among partners. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. The following information is available on PDC Enterprises, a partnership, for the most recent fiscal year:

There are three partners in TGR Enterprises: Pearson, Darling and Cathay. At the end of the year, the partners' capital accounts were in the ratio of 2:2:1, respectively. Compute the ending capital balances of Cathay.

A) $544,000. B) $416,000. C) $402,000. D) $466,000. E) $388,000.

Learning Objective: 12-P2 Allocate and record income and loss among partners. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

A partner can withdraw from a partnership by any of the following means except:

• 1. Receiving assets from the partnership in the amount of his/her interest.
  2. Selling his/her interest to another person for cash.
  3. Receiving cash from the partnership in the amount of his/her interest.
  4. Close the business and liquidate the assets under the mutual agency principle.
  5. Selling his/her interest to another person in exchange for assets.

Learning Objective: 12-P3 Account for the admission of partners. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: FN Decision Making; BB Industry

A bonus may be paid in all of the following situations except:

• 1. By remaining partners to a withdrawing partner if the recorded equity is understated.
  2. To a new partner with exceptional talents.
  3. By an existing partner to him or herself when in need of personal cash flow.
  4. By a new partner when the current value of a partnership is greater than the recorded amounts of equity.
  5. By a withdrawing partner to remaining partners if the recorded value of the equity is overstated.

Learning Objective: 12-P3 Account for the admission of partners. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: FN Decision Making; BB Industry

When a partner is added to a partnership:

• 1. The partnership equity always increases.
  2. The partnership must continue.
  3. The underlying business operations end.
  4. The underlying business operations must close and then re-open.
  5. The previous partnership ends.

Learning Objective: 12-P3 Account for the admission of partners. Bloom's: Remember

AACSB: Communication

AICPA: BB Legal; FN Decision Making; BB Industry

1. A partnership recorded the following journal entry:

This entry reflects:

Withdrawal of a partner who pays a $10,000 bonus to each of the other partners.

• 1. Withdrawal of $10,000 each by Founder and Aqui upon the admission of a new partner.
  2. Additional investment into the partnership by Founder and Aqui.
  3. Addition of a partner who pays a bonus to each of the other partners.
  4. Acceptance of a new partner who invests $60,000 and receives a $20,000 bonus.

Learning Objective: 12-P3 Account for the admission of partners. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Wright, Bell, and Edison are partners and share income in a 2:5:3 ratio. The partnership's capital balances are as follows: Wright, $33,000, Bell $27,000 and Edison $40,000. Edison decides to withdraw from the partnership, and the partners agree not to revalue the assets upon Edison's retirement. The journal entry to record Edison's June 1 withdrawal from the partnership if Edison sells his interest to Whitney for $45,000 after the other two partners approve Whitney as partner is:

Debit Edison, Capital $40,000; credit Cash $40,000.

• 1. Debit Edison, Capital $45,000; credit Whitney, Capital $45,000.
  2. Debit Edison, Capital $40,000; debit Cash $5,000; credit Whitney, Capital $45,000.
  3. Debit Edison, Capital $40,000; credit Whitney, Capital $40,000.
  4. Debit Edison, Capital $40,000; debit Wright, Capital $2,500; debit Bell, Capital $2,500; credit Whitney, Capital $45,000.

Learning Objective: 12-P3 Account for the admission of partners. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Wright, Bell, and Edison are partners and share income in a 2:5:3 ratio. The partnership's capital balances are as follows: Wright, $33,000, Bell $27,000 and Edison $40,000. Edison decides to withdraw from the partnership, and the partners agree not to revalue the assets upon Edison's retirement. The journal entry to record Edison's June 1 withdrawal from the partnership if Edison is paid $40,000 for his equity is:

Debit Wright, Capital $20,000; Debit Bell, Capital $20,000; credit Cash $40,000.

• 1. Debit Edison, Capital $40,000; credit Wright, Capital $20,000; credit Bell, Capital $20,000.
  2. Debit Edison, Capital $40,000; credit Cash $40,000.
  3. Debit Wright, Capital $20,000; Debit Bell, Capital $20,000; credit Edison, Capital $40,000.
  4. Debit Cash $40,000; credit Edison, Capital $40,000.

Learning Objective: 12-P3 Account for the admission of partners. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Hewlett and Martin are partners. Hewlett's capital balance in the partnership is $64,000, and Martin's capital balance $67,000. Hewlett and Martin have agreed to share equally in income or loss. The existing partners agree to accept Black with a 20% interest. Black will invest $35,000 in the partnership. The bonus that is granted to Hewlett and Martin equals:

600 to Hewlett; $900 to Martin. B) $1,500 each.

1. $900 each.
2. $600 each.
3. $0, because Hewlett and Martin actually grant a bonus to Black.

Learning Objective: 12-P3 Account for the admission of partners. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Hewlett and Martin are partners. Hewlett's capital balance in the partnership is $64,000, and Martin's capital balance $61,000. Hewlett and Martin have agreed to share equally in income or loss. Hewlett and Martin agree to accept Black with a 25% interest. Black will invest $35,000 in the partnership. The bonus that is granted to Black equals:

A) $5,000.

B) $3,333.

C) $2,500.

D) $6,667.

1. $0, because Black must actually grant a bonus to Hewlett and Martin.

Learning Objective: 12-P3 Account for the admission of partners. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Masters, Hardy, and Rowen are dissolving their partnership. Their partnership agreement allocates income and losses equally among the partners. The current period's ending capital account balances are Masters, $15,000; Hardy, $15,000; Rowen, $(2,000). After all the assets are sold and liabilities are paid, but before any contributions to cover any deficiencies, there is $28,000 in cash to be distributed. Rowen pays $2,000 to cover the deficiency in his account. The general journal entry to record the final distribution would be:

Debit Masters, Capital $14,000; debit Hardy, Capital $14,000; credit Cash $28,000.

• 1. Debit Masters, Capital $15,000; debit Hardy, Capital $15,000; credit Rowen, Capital $2,000; credit Cash $28,000.
  2. Debit Masters, Capital $9,334; debit Hardy, Capital $9,333; debit Rowen, Capital $9,333; credit Cash $28,000.

Debit Masters, Capital $15,000; debit Hardy, Capital $15,000; credit Cash $30,000.

• 1. Debit Cash $28,000; debit Rowen, Capital $2,000; credit Masters, Capital $15,000; credit Hardy, Capital $15,000.

Learning Objective: 12-P4 Account for the withdrawal of partners. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Masters, Hardy, and Rowen are dissolving their partnership. Their partnership agreement allocates income and losses equally among the partners. The current period's ending capital account balances are Masters, $15,000; Hardy, $15,000; Rowen, $30,000. After all the assets are sold and liabilities are paid, but before any contributions to cover any deficiencies, there is $54,000 in cash to be distributed. The general journal entry to record the final distribution would be:
   1. Debit Masters, Capital $13,500; debit Hardy, Capital $13,500; debit Rowen, Capital $27,000; credit Cash $54,000.
   2. Debit Cash $54,000; credit Rowen, Capital $13,500; credit Masters, Capital $13,500; credit Hardy, Capital $27,000.
   3. Debit Masters, Capital $15,000; debit Hardy, Capital $15,000; debit Rowen, Capital $30,000; credit Loss from Liquidation $6000; credit Cash $54,000.
   4. Debit Masters, Capital $15,000; debit Hardy, Capital $15,000; debit Rowen, Capital $30,000; credit Gain from Liquidation $6,000; credit Cash $54,000.
   5. Debit Masters, Capital $13,000; debit Hardy, Capital $13,000; debit Rowen, Capital $28,000; credit Cash $54,000.

Learning Objective: 12-P4 Account for the withdrawal of partners. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

When a partnership is liquidated:

• 1. Any gain or loss on liquidation is allocated to the partner with the highest capital account balance.

The business may continue to operate.

• 1. Liabilities are paid or settled.
  2. Any remaining cash is distributed to the partners equally.
  3. Noncash assets are distributed to partners.

Learning Objective: 12-P4 Account for the withdrawal of partners. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

A capital deficiency means that:

• 1. At least one partner has a credit balance in his/her capital account.
  2. The partnership has more liabilities than assets.
  3. The partnership has a loss.
  4. At least one partner has a debit balance in his/her capital account.
  5. The partnership has been sold at a loss.

Learning Objective: 12-P4 Account for the withdrawal of partners. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

When a partner is unable to pay a capital deficiency:

• 1. The partner must take out a loan to cover the deficient balance.
  2. The deficient partner is relieved of the liability.
  3. The remaining partners must wait for the deficiency to be paid before cash is distributed.
  4. The partnership ends before distribution of cash.
  5. The deficiency is absorbed by the remaining partners before distribution of cash.

Learning Objective: 12-P4 Account for the withdrawal of partners. Bloom's: Understand

AACSB: Communication

AICPA: BB Legal; FN Decision Making; BB Industry

1. 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:
   1. Debit Cash $77,000, debit Gage, Capital $5,000, credit Henry, Capital $45,000, credit Luther, Capital $37,000.
   2. Debit Cash $77,000; credit Henry, Capital $25,667; credit Luther, Capital $25,667; credit Gage, Capital $25,666.

Debit Henry, Capital $42,500; debit Luther, Capital $34,500; credit Cash $77,000.

• 1. Debit Henry, Capital $25,667; debit Luther, Capital $25,667; debit Gage, Capital $25,666; credit Cash $77,000.
  2. Debit Henry, Capital $45,000; debit Luther, Capital $37,000; credit Gage, Capital $5,000; credit Cash $77,000.

Learning Objective: 12-P4 Account for the withdrawal of partners. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. 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?

A) $0.

1. Gage will be invoiced for $5,000. C) $25,667.

D) $30,667. E) $20,667.

Learning Objective: 12-P4 Account for the withdrawal of partners. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. 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 the building and for Fontaine's Capital account are:

Building $250,000; Fontaine, Capital $75,000.

• 1. Building $250,000; Fontaine, Capital $250,000.
  2. Building $250,000; Fontaine, Capital $175,000.
  3. Building $175,000; Fontaine, Capital $175,000.
  4. Building $175,000; Fontaine, Capital $75,000.

Learning Objective: 12-P1 Prepare entries for partnership formation. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. 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 Fontaine's Capital account and for Monroe's Capital account are:

Fontaine, Capital $175,000; Monroe, Capital $45,000.

• 1. Fontaine, Capital $250,000; Monroe, Capital $100,000.
  2. Fontaine, Capital $0; Monroe, Capital $100,000.
  3. Fontaine, Capital $250,000; Monroe, Capital $155,000.
  4. Fontaine, Capital $175,000; Monroe, Capital $155,000.

Learning Objective: 12-P1 Prepare entries for partnership formation. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. 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:

Total assets $405,000; total capital $305,000.

• 1. Total assets $305,000; total capital $230,000.
  2. Total assets $350,000; total capital $350,000.
  3. Total assets $350,000; total capital $275,000.
  4. Total assets $405,000; total capital $330,000.

Learning Objective: 12-P1 Prepare entries for partnership formation. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. 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.

Learning Objective: 12-P2 Allocate and record income and loss among partners. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. 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 Lee's capital account? (Do not round your intermediate calculations.)

A) $67,500. B) $54,000. C) $60,000. D) $50,000. E) $45,000.

Learning Objective: 12-P2 Allocate and record income and loss among partners. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. 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 a 5% interest allowance on the partner's capital balances with the remaining income or loss to be allocated equally. If the partnership reports income of $150,000 for its first year, what amount of income is credited to North's capital account?

A) $45,000. B) $61,500. C) $63,500. D) $50,000. E) $47,500.

Learning Objective: 12-P2 Allocate and record income and loss among partners. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. 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 a 5% interest allowance on the partner's capital balances with the remaining income or loss to be allocated equally. If the partnership reports income of $174,000 for its first year, what amount of income is credited to Lee's capital account?

A) $55,500. B) $61,500. C) $57,000. D) $48,000. E) $58,000.

Learning Objective: 12-P2 Allocate and record income and loss among partners. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Mace and Bowen are partners and share equally in income or loss. Mace's current capital balance is

$135,000 and Bowen's is $120,000. Mace and Bowen agree to accept Kent with a 30% interest in the partnership. Kent invests $115,000 in the partnership. The amount credited to Kent's capital account is:

A) $115,000. B) $92,500. C) $120,000. D) $111,000. E) $119,000.

Learning Objective: 12-P3 Account for the admission of partners. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Mace and Bowen are partners and share equally in income or loss. Mace's current capital balance is

$135,000 and Bowen's is $120,000. Mace and Bowen agree to accept Kent with a 30% interest in the partnership. Kent invests $115,000 in the partnership. The balances in Mace's and Bowen's capital accounts after admission of the new partner equal:

A) Mace $133,000; Bowen $118,000. B) Mace $135,000; Bowen $124,000. C) Mace $137,000; Bowen $122,000. D) Mace $135,000; Bowen $120,000. E) Mace $139,000; Bowen $120,000.

Learning Objective: 12-P3 Account for the admission of partners. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. 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 balances in Peters's and Chong's capital accounts after admission of the new partner equal:

A) Peters $140,000; Chong $130,000. B) Peters $133,800; Chong $123,800. C) Peters $146,200; Chong $136,200. D) Peters $145,000; Chong $135,000. E) Peters $166,027; Chong $156,027.

Learning Objective: 12-P3 Account for the admission of partners. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. 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:

A) $114,533. B) $81,000. C) $110,400. D) $98,000. E) $102,600.

Learning Objective: 12-P3 Account for the admission of partners. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. 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:

Debit Peters, Capital $54,000; debit Chong, Capital $40,000; credit Cash $94,000.

• 1. Debit Peters, Capital $53,000; debit Chong, Capital $41,000; credit Cash $94,000.
  2. Debit Cash $94,000; credit Peters, Capital $47,000; credit Chong, Capital $47,000.
  3. Debit Cash $94,000, debit Aaron, Capital $2,000, credit Peters, Capital $54,000, credit Chong, Capital $42,000.

Debit Peters, Capital $54,000; debit Chong, Capital $42,000; credit Cash $96,000.

Learning Objective: 12-P4 Account for the withdrawal of partners. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. 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?

A) $320,000 B) $362,500 C) $195,000 D) $445,000 E) $357,500

Learning Objective: 12-A1 Compute partner return on equity and use it to evaluate partnership performance. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Risk Analysis

1. 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 return on equity?

A) 33.8% B) 41.3% C) 36.5% D) 32.7% E) 43.9%

Learning Objective: 12-A1 Compute partner return on equity and use it to evaluate partnership performance. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Risk Analysis

1. 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 Atkins's return on equity?

A) 41.3% B) 43.9% C) 36.5% D) 32.7% E) 33.8%

Learning Objective: 12-A1 Compute partner return on equity and use it to evaluate partnership performance. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Risk Analysis

1. Fellows and Marshall are partners in an accounting firm and share net income and loss equally. Fellows' beginning partnership capital balance for the current year is $185,000, and Marshall's beginning partnership capital balance for the current year is $260,000. The partnership had net income of $350,000 for the year. Fellows withdrew $80,000 during the year and Marshall withdrew

$70,000. What is Marshall's return on equity?

A) 54.3% B) 56.0% C) 60.3% D) 78.7% E) 67.3%

Learning Objective: 12-A1 Compute partner return on equity and use it to evaluate partnership performance. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Risk Analysis

1. If a company wants to protect its three investors against personal liability risk, which of the following business forms would not be a suitable option?

Limited liability partnership

• 1. S Corporation
  2. Partnership
  3. C Corporation
  4. Limited liability company

Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations. Bloom's: Understand

AACSB: Communication

AICPA: BB Legal; FN Decision Making

1. Reno contributed $104,000 in cash plus equipment valued at $27,000 to the RD Partnership. The journal entry to record the transaction for the partnership is:

Debit Cash $104,000; debit Equipment $27,000; credit Common Stock $131,000.

• 1. Debit Reno, Capital $131,000; credit RD Partnership, Capital $131,000.
  2. Debit Cash $104,000; debit Equipment $27,000; credit Reno, Capital $131,000.
  3. Debit Cash $104,000; debit Equipment $27,000; credit RD Partnership, Capital $131,000.
  4. Debit RD Partnership, Capital $131,000; credit Reno, Capital $131,000.

Learning Objective: 12-P1 Prepare entries for partnership formation. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. 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:

Debit Cash $800; debit Equipment $1,700; credit Bloom, Capital $2,500.

• 1. Debit Cash $800; debit Equipment $1,200; credit Bloom, Capital $2,000.
  2. Debit Cash $800; debit Equipment $1,700; credit Note Payable $500; credit Bloom, Capital

$2,000.

Debit Cash $2,000; credit Bloom, Capital $2,000.

• 1. Debit Bloom, Capital $3,000; credit Common Stock $3,000.

Learning Objective: 12-P1 Prepare entries for partnership formation. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. 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:

Debit Cash $2,500; credit Note Payable $500; credit Plant, Capital $2,500.

• 1. Debit Cash $1,500; debit Note Payable $500; credit Plant, Capital $2,000.
  2. Debit Cash $2,000; credit Note Payable $500, credit Plant, Capital $1,500.
  3. Debit Cash $2,000; credit Plant, Capital $2,000.
  4. Debit Bloom, Capital $2,000; credit Cash $2,000.

Learning Objective: 12-P1 Prepare entries for partnership formation. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Wallace and Simpson formed a partnership with Wallace contributing $60,000 and Simpson contributing $40,000. Their partnership agreement calls for the income (loss) division to be based on the ratio of capital investments. The partnership had income of $150,000 for its first year of operation. When the Income Summary is closed, the journal entry to allocate partner income is:

Debit Wallace, Capital $90,000; debit Simpson, Capital $60,000; credit Cash $150,000.

• 1. Debit Cash $150,000; credit Wallace, Capital $90,000; credit Simpson, Capital $60,000.
  2. Debit Income Summary $150,000; credit Wallace, Capital $90,000; credit Simpson, Capital

$60,000.

• 1. Debit Wallace, Capital $75,000; debit Simpson, Capital $75,000; credit Income Summary

$150,000.

• 1. Debit Income Summary $150,000; credit Wallace, Capital $75,000; credit Simpson, Capital

$75,000.

Learning Objective: 12-P2 Allocate and record income and loss among partners. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Wallace and Simpson formed a partnership with Wallace contributing $60,000 and Simpson contributing $40,000. Their partnership agreement calls for the income (loss) division to be based on the ratio of capital investments. Wallace sold one-half of his partnership interest to Prince for

$55,000 when his capital balance was $78,000. The partnership would record the admission of Prince into the partnership as:

Debit Wallace, Capital $30,000; credit Prince, Capital $30,000.

• 1. Debit Wallace, Capital $55,000; credit Prince, Capital $55,000.
  2. Debit Prince, Capital $55,000; credit Wallace, Capital $55,000.
  3. Debit Wallace, Capital $39,000; credit Prince, Capital $39,000.
  4. Debit Wallace, Capital $39,000; debit Cash $16,000; credit Prince, Capital $55,000.

Learning Objective: 12-P3 Account for the admission of partners. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. 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:

Debit Cash $20,000; credit Prince, Capital $20,000.

• 1. Debit Cash $50,000; credit Royal, Capital $50,000.
  2. Debit Cash $40,000; debit Wallace, Capital $3,000; debit Simpson, Capital, $4,000; debit Prince, Capital $3,000; credit Royal, Capital $50,000.

Debit Cash $50,000; credit Simpson, Capital $10,000, credit Royal, Capital $40,000.

• 1. Debit Wallace, Capital $15,000; debit Simpson, Capital, $20,000; debit Prince, Capital

$15,000; credit Royal, Capital $50,000.

Learning Objective: 12-P3 Account for the admission of partners. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. 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:

A) $160,000 B) $300,000 C) $460,000 D) $68,000 E) $92,000

Learning Objective: 12-P3 Account for the admission of partners. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. 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:

A) $140,400 B) $107,200 C) $120,400 D) $99,600 E) $160,000

Learning Objective: 12-P3 Account for the admission of partners. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. 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:

A) $68,000 B) $300,000 C) $92,000 D) $72,000 E) $160,000

Learning Objective: 12-P3 Account for the admission of partners. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. 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 Caitlin's capital account immediately after Paul's admission is:

A) $60,000 B) $123,600 C) $72,000 D) $120,000 E) $116,400

Learning Objective: 12-P3 Account for the admission of partners. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

SHORT ANSWER QUESTIONS

1. Match each of the following terms with the appropriate definitions.
2. S corporation
3. Mutual agency
4. Partnership
5. Unlimited liability of partners
6. Partnership contract
7. C corporation
8. General partner
9. Limited liability partnership
10. Statement of partners' equity
11. Limited partnership

_____ 1. A financial statement that shows total capital balances at the beginning of the period, any additional investment by partners, the income or loss of the period, the partners' withdrawals, and the ending capital balances.

2. A partnership that has two classes of partners, limited partners and general partners. Limited partners have no personal liability beyond the amount they invest in the partnership, and have no active role except as specified in the partnership agreement.

_____ 3. A partnership that protects innocent partners from malpractice or negligence claims resulting from the acts of another partner.

4. 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.

_____ 5. The agreement between partners that sets terms under which the affairs of the partnership are conducted.

_____ 6. An unincorporated association of two or more persons to pursue a business for profit as co-owners.

_____ 7. A partner who assumes unlimited liability for the debts of the partnership.

_____ 8. The legal relationship among partners whereby each partner can commit or bind the partnership to any contract within the scope of the partnership's business.

_____ 9. A corporation that does not qualify for nor elect to be treated as a partnership for income tax purposes and therefore is subject to income taxes.

_____ 10. A corporation with 100 or fewer stockholders that can elect to be treated as a partnership for income tax purposes but retain the same limited liability as other corporations.

Learning Objective: 12-C1

Bloom's: Remember AACSB: Communication

AICPA: BB Industry; BB Legal; FN Decision Making

ESSAY QUESTIONS

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

Learning Objective: 12-C1

Bloom's: Understand AACSB: Communication

AICPA: BB Industry; BB Legal; FN Decision Making

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

Learning Objective: 12-A1 Bloom's: Understand

AACSB: Communication

AICPA: BB Resource Management; FN Risk Analysis

How are partners' investments in a partnership recorded?

Learning Objective: 12-P1 Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Measurement

1. Discuss the options for the allocation of income and loss among partners, including with and without a partnership agreement.

Learning Objective: 12-P2 Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Measurement

1. What are the ways that a new partner can be admitted to an existing partnership? Explain how to account for the admission of the new partner under each of these circumstances.

Learning Objective: 12-P3

Bloom's: Understand AACSB: Communication

AICPA: BB Industry; FN Measurement

1. What are the ways a partner can withdraw from a partnership? Explain how to account for the withdrawal of a current partner from a partnership.

Learning Objective: 12-P4

Bloom's: Understand AACSB: Communication

AICPA: BB Industry; FN Measurement

Explain the steps involved in the liquidation of a partnership.

Learning Objective: 12-P4 Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Measurement

What factors should be considered before establishing a partnership?

Learning Objective: 12-C1

Bloom's: Understand AACSB: Communication

AICPA: BB Industry; FN Measurement

1. Cinema Products LP is organized as a limited partnership that sells movie props. Information related to 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?

Learning Objective: 12-A1 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; BB Critical Thinking; FN Risk Analysis

1. 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.

Learning Objective: 12-A1 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; BB Critical Thinking; FN Risk Analysis

1. Caroline Meeks and Charlie Fox decide to form a partnership on August 1. Meeks invests the following assets and liabilities in the new partnership:

The note payable is associated with the building and the partnership will assume responsibility for the loan. Fox invested $100,000 in cash and $95,000 in equipment in the new partnership. Prepare the journal entries to record the two partners' original investments in the new partnership.

Diff: 2

Topic: Organizing a Partnership Learning Objective: 12-P1 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. Montez and Flair formed a partnership. Montez contributed $15,000 cash and accounts receivable worth $11,000. Flair contributed cash of $5,000; inventory valued at $16,000; and supplies valued at $2,000. Prepare the journal entries to record each partner's investment in the new partnership.

Diff: 2

Topic: Organizing a Partnership Learning Objective: 12-P1 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. MacArthur, Strong, and Viet form a partnership. MacArthur contributes $190,000 cash and Strong contributes $200,000 in cash. Viet contributes equipment worth $215,000. Prepare the single journal entry to record the formation of this partnership.

Diff: 2

Topic: Organizing a Partnership Learning Objective: 12-P1 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. Ranger and Sol formed a partnership with capital contributions of $150,000 and $180,000, respectively. Their partnership agreement called for Ranger to receive a $60,000 annual salary allowance. They also agreed to allow each partner a share of income equal to 10% of their initial capital investments. The remaining income or loss is to be divided equally. If the net income for the current year is $110,000, what are Ranger's and Sol's respective shares?

Diff: 3

Topic: Dividing Income or Loss Learning Objective: 12-P2 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. Bannister invested $110,000 and Wilder invested $99,500 in a new partnership. They agreed to an annual interest allowance of 10% 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 $202,000?

Diff: 2

Topic: Dividing Income or Loss Learning Objective: 12-P2 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. 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?

Diff: 2

Topic: Dividing Income or Loss Learning Objective: 12-P2 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. 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. Under this agreement, what are the income or loss shares of the partners if the annual partnership income is $90,000?

Learning Objective: 12-P2 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. Fallon and Springer formed a partnership on January 1. Fallon contributed $90,000 cash and equipment with a market value of $60,000. Springer's investment consisted of: cash, $30,000; inventory, $20,000; all at market values. Partnership net income for Year 1 and Year 2 was $75,000 and $120,000, respectively.
2. Determine each partner's share of the net income for each year, assuming each of the following

independent situations:

1. Income is divided based on the partners' failure to sign an agreement.
2. Income is divided based on a 2:1 ratio (Fallon: Springer).
3. Income is divided based on the ratio of the partners' original capital investments.
4. Income is divided based on interest allowance of 12% on the original capital investments; salary allowance to Fallon of $30,000 and Springer of $25,000; and the remainder to be divided equally.
5. Prepare the journal entry to record the allocation of the Year 1 income under alternative (d) above.

Learning Objective: 12-P2 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. Lin and Coral invested $99,000 and $126,000, respectively, in a partnership they began one year ago. Assuming the partnership earned $120,000 during the current year; compute the share of the net income each partner should receive under each of these independent assumptions.
2. The partnership contract specifies salary allowances of $45,000 to Lin and $60,000 to Coral, and any balance shared equally.

1. The partnership contract specifies salary allowances of $45,000 to Lin and $60,000 to Coral, interest allowance of 10% on the partners' beginning capital balance for the year.

Learning Objective: 12-P2 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. Glade, Marker, and Walters are partners with beginning-year capital balances of $100,000, $50,000, and $50,000, respectively. Partnership net income for the year is $84,000. Make the necessary journal entry to close Income Summary to the capital accounts if:
2. Partners agree to divide income based on their beginning-year capital balances.
3. Partners agree to divide income based on the ratio of 5:3:2 (Glade:Marker:Walters), respectively.
4. Partnership agreement is silent as to division of income and less.

Diff: 3

Topic: Dividing Income or Loss Learning Objective: 12-P2 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. Glade, Marker, and Walters are partners with beginning-year capital balances of $250,000,

$150,000, and $100,000, respectively. Partnership net income for the year is $192,000. Make the necessary journal entry to close Income Summary to the capital accounts if partners agree to divide income based on their beginning-year capital balances.

Diff: 2

Topic: Dividing Income or Loss Learning Objective: 12-P2 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. Jakobs, Penn, and Lundt are partners with beginning-of-year capital balances of $400,000,

$320,000, and $160,000, respectively. The partners agreed to share income and loss as follows: Salary of $30,000 to Jakobs, $50,000 to Penn, and $36,000 to Lundt. An interest allowance of 8% on beginning-of-year capital balances. Any remaining balance is to be divided equally. If partnership net income for the year is $190,000, determine each partner's share and make the appropriate journal entry to close the Income Summary to the capital accounts.

Diff: 3

Topic: Dividing Income or Loss Learning Objective: 12-P2 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. Darien and Hayden agree to accept Kevin into their partnership. Kevin will contribute $22,000 in cash. Prepare the journal entry to record this transaction.

Learning Objective: 12-P3

Bloom's: Understand AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. Palmer withdraws from the FAP Partnership. The remaining partners agree to buy out her share for her capital balance of $65,000. Prepare the journal entry to record the withdrawal from the partnership.

Learning Objective: 12-P3

Bloom's: Understand AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. Lemon and Parks are partners. On October 1, Lemon's capital balance is $75,000, and Parks' capital balance is $125,000. With the partnership's approval, Parks sells ½ of his partnership interest to Tambling for $70,000. Prepare the journal entry to record this transaction in the partnership records.

Learning Objective: 12-P3

Bloom's: Understand AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. Leto and Duncan allow Gunner to purchase a 25% interest in their partnership for $30,000 cash. Gunner has exceptional talents that will enhance the partnership. Leto's and Duncan's capital account balances are $55,000 each. The partners have agreed to share income or loss equally. Prepare the general journal entry to record the admission of Lepley to the partnership.

Learning Objective: 12-P3

Bloom's: Apply AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. Conklin plans to leave the CAP Partnership. The recorded value of his capital account is $48,000. The remaining partners Arthurs and Preston agree to pay Conklin $40,000 cash and Conklin accepts. The partners share income and loss equally. Prepare the general journal entry to record the withdrawal from the partnership.

Learning Objective: 12-P3

Bloom's: Apply AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. Conklin plans to leave the CAP Partnership. The recorded balance in her capital account is

$48,000. The remaining partners, Arthurs and Preston, agree to pay Conklin $58,000 cash and Conklin accepts. The partners share income and loss equally. Prepare the journal entry to record the transaction.

Learning Objective: 12-P3

Bloom's: Apply AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. 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.

Learning Objective: 12-P3

Bloom's: Apply AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. The Redtail Partnership agrees to dissolve. The remaining cash balance after liquidating partnership assets and liabilities is $70,000. The final capital account balances are: Paulson,

$35,000; Gray, $25,000; and Chang, $10,000. Prepare the journal entry to distribute the remaining cash to the partners.

Learning Objective: 12-P4 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. The Redtail Partnership agrees to dissolve. The cash balance after selling all assets and paying all liabilities is $56,000. The final capital account balances are: Paulson, $33,000; Gray, $27,000; and Chang, ($4,000). Chang 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.

Learning Objective: 12-P4 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

101

1. The Redtail Partnership agrees to dissolve. The cash balance after selling all assets and paying all liabilities is $60,000. The final capital account balances are: Paulson, $35,000; Gray, $29,000; and Chang, ($4,000). Chang is unable to pay the capital deficiency. Prepare the journal entries to record the transactions required to dissolve this partnership.

Learning Objective: 12-P4 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. 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?

Learning Objective: 12-P2 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. 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.

Learning Objective: 12-P1; 12-P2

Bloom's: Apply AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. Kramer and Feldman Company is organized as a partnership. At the prior year-end, Kramer's equity balance was $352,000 and Feldman's was $256,000. For the current year, partnership net income is $137,000 ($77,000 allocated to Kramer and $60,000 allocated to Feldman); withdrawals are $87,000 ($45,000 for Kramer and $42,000 for Feldman). Compute the total partnership return on equity and the individual partner return on equity ratios.

Learning Objective: 12-A1 Bloom's: Apply

AACSB: Analytic

AICPA: BB Resource Management; FN Risk Analysis

1. Masco, Short, and Henderson who are partners in the MSH Company share income and loss in a 2:2:1 ratio. They plan to liquidate their partnership. At liquidation, their balance sheet appears as follows. Prepare journal entries for (a) the sale of land and equipment sold as a package for

$500,000, (b) the allocation of the gain or loss, (c) the payment of the liabilities, and (d) the distribution of cash to the individual partners.

MSH Company Balance Sheet January 31

Learning Objective: 12-P4 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. Tower, Knight, and Spears are partners who share income and loss in a 3:2:2 ratio. The partnership's capital balances are as follows: Tower, $332,000; Knight, $124,000; and Spears,

$214,000. Spears decides to withdraw from the partnership, and the partners agree not to have the assets revalued upon Spears' retirement. Prepare journal entries to record Spears' withdrawal from the partnership under each of the following separate assumptions: Spears (a) sells his interest to Conner for $200,000 after Tower and Knight approve the entry of Conner as a partner; (b) is paid

$214,000 in partnership cash for his equity; (c) is paid $205,000 in partnership cash for his equity;

(d) is paid $220,000 in partnership cash for his equity.

Learning Objective: 12-P3

Bloom's: Apply AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. Tower, Knight, and Spears are partners who share income and loss in a 4:2:2 ratio. The partnership's capital balances are as follows: Tower, $292,000; Knight, $114,000; and Spears,

$194,000. Damsel is admitted to the partnership on March 1 with a 25% equity. Prepare the journal entries to record Damsel's entry into the partnership under each of the following separate assumptions: Damsel invests (a) $200,000; (b) $180,000; and (c) $240,000.

Learning Objective: 12-P3

Bloom's: Apply AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. On May 1, Gosworth and Jordan formed a partnership. Gosworth contributed cash of $100,000 and equipment valued at $142,000. Jordan contributed land valued at $130,000 and a building valued at $250,000. The partnership also assumed responsibility for Jordan's $120,000 long-term note payable associated with the land and building. The partners agreed to share income as follows: Gosworth is to receive a salary allowance of $38,000, both are to receive an annual interest allowance of 8% of their beginning-year capital investments, and any remaining income or loss is to be shared equally. During the year, Gosworth withdrew $40,000 and Jordan withdrew

$42,000 cash. After the adjusting and closing entries are made to the revenue and expense accounts at the end of the year, the Income Summary account had a credit balance of $140,000. Prepare the journal entries to record (a) the partners' initial capital investments, (b) their cash withdrawals, and (c) closing of both the Withdrawals and Income Summary accounts.

Learning Objective: 12-P1; 12-P2

Bloom's: Apply AACSB: Analytic

AICPA: BB Industry; FN Measurement

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

Learning Objective: 12-A1 Bloom's: Apply

AACSB: Analytic

AICPA: BB Resource Management; FN Risk Analysis

SHORT ANSWER QUESTIONS

The life of a partnership is ________ in duration.

Learning Objective: 12-C1

Bloom's: Remember AACSB: Communication

AICPA: BB Industry; BB Legal; FN Decision Making

ESSAY QUESTIONS

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

Learning Objective: 12-C1

Bloom's: Remember AACSB: Communication

AICPA: BB Industry; BB Legal; FN Decision Making

1. ________ means that partners can commit or bind the partnership to any contract within the scope of the partnership business.

Learning Objective: 12-C1

Bloom's: Remember AACSB: Communication

AICPA: BB Industry; BB Legal; FN Decision Making

1. implies that each partner in a partnership can be called on to personally pay a partnership's debts.

Learning Objective: 12-C1

Bloom's: Remember AACSB: Communication

AICPA: BB Industry; BB Legal; FN Decision Making

1. A partnership that has at least two classes of partners, general and limited, allows the limited partners to have no personal liability beyond the amounts they invest in the partnership, and the limited partners have no active role except as specified in the partnership agreement is a partnership.

Learning Objective: 12-C1

Bloom's: Remember AACSB: Communication

AICPA: BB Industry; BB Legal; FN Decision Making

1. A partnership designed to protect innocent partners from malpractice or negligence claims resulting from the acts of other partners is a partnership.

Learning Objective: 12-C1

Bloom's: Remember AACSB: Communication

AICPA: BB Industry; BB Legal; FN Decision Making

1. 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 .

Learning Objective: 12-C1

Bloom's: Remember AACSB: Communication

AICPA: BB Industry; BB Legal; FN Decision Making

1. Partners in a partnership are not taxed on their withdrawals , but rather on ________.

Learning Objective: 12-C1

Bloom's: Remember AACSB: Communication

AICPA: BB Industry; BB Legal; FN Decision Making

Partner net income divided by average partner equity equals .

Learning Objective: 12-A1 Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Risk Analysis

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

Learning Objective: 12-P1 Bloom's: Understand

AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. During the closing process, partner's capital accounts are ________ for their share of net income and ________ for their share of net loss.

Learning Objective: 12-P2 Bloom's: Understand

AACSB: Analytic

AICPA: BB Industry; FN Measurement

During the closing process, each partner's withdrawals account is closed to ________.

Learning Objective: 12-P2 Bloom's: Understand

AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. If partners agree on how to share income, but say nothing about losses, then losses are shared

________.

Learning Objective: 12-P2 Bloom's: Understand

AACSB: Analytic

AICPA: BB Industry; FN Measurement

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

Learning Objective: 12-P3

Bloom's: Understand AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. If a partner withdraws from a partnership and the recorded value of his or her equity is overstated, then a bonus goes to ; if the recorded value of the withdrawing partner's equity is understated, then a bonus goes to ________.

Learning Objective: 12-P3

Bloom's: Understand AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. At least one partner having a debit balance in his/her capital account at the point of the final distribution of cash is known as a ________.

Learning Objective: 12-P4 Bloom's: Remember

AACSB: Analytic

AICPA: BB Industry; FN Measurement