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Exam 12: Accounting for Partnerships

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Question 91

Multiple Choice

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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?

A) Limited liability partnership
B) S Corporation
C) Partnership
D) C Corporation
E) Limited liability company

F) B) and D)
G) B) and C)

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Question 92

Multiple Choice

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A capital deficiency means that:

A) At least one partner has a credit balance in his/her capital account.
B) The partnership has more liabilities than assets.
C) The partnership has a loss.
D) At least one partner has a debit balance in his/her capital account.
E) The partnership has been sold at a loss.

F) A) and D)
G) A) and B)

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Question 93

True/False

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

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 ________.

When a partner is added to a partnership:

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?

Partners can invest assets but not liabilities into a partnership.

Advantages of a partnership include:

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?

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

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

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: