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Exam 16: Partnership Accounting

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Question 71

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What factors should be considered before establishing a partnership?

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Anyone considering forming a partnership...

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Question 72

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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:

A) Debit Income Summary, $105,000; Credit Zheng, Capital, $52,500, Credit Murray, Capital, $52,500.
B) Debit Income Summary, $105,000; Credit Zheng, Capital, $35,000, Credit Murray, Capital, $70,000.
C) Debit Income Summary, $105,000; Credit Zheng, Capital, $57,500, Credit Murray, Capital, $47,500.
D) Debit Income Summary, $105,000; Credit Zheng, Capital, $42,500, Credit Murray, Capital, $62,500.
E) Debit Zheng, Capital, $57,500, Debit Murray, Capital, $47,500; Credit Income Summary, $105,000;

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

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Question 73

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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.

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

When a partnership is liquidated:

Maxwell and Smart are forming a partnership. Maxwell is investing a building that has a market value of $180,000. However, the building carries a $56,000 mortgage that will be assumed by the partnership. Smart is investing $120,000 cash. The balance of Maxwell's Capital account will be:

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

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:

A capital deficiency means that:

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

Explain the steps involved in the liquidation of a partnership.

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

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. 1. Determine each partner's share of the net income for each year, assuming each of the following independent situations: (a) Income is divided based on the partners' failure to sign an agreement. (b) Income is divided based on a 2:1 ratio (Fallon: Springer). (c) Income is divided based on the ratio of the partners' original capital investments. (d) 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. 2. Prepare the journal entry to record the allocation of the Year 1 income under alternative (d) above.

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:

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:

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

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 ________.

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.

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?

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: Historical cost of the asset $76,000 Accumulated depreciation on the asset $40,000 Note payable secured by the asset* $18,000 Agreed-upon market value of the asset $45,000 *will be assumed by the partnership Based on this information, Harvey's beginning equity balance in the partnership will be: