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Exam 19: Accounting for Partnerships

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Question 31

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Kaitlyn Fields and Tyler Unger are partners. To expand the expertise of their business, they have agreed to admit Serena Singh to the partnership on January 1, 2013. The capital account balances on January 1, 2013, after revaluation of assets, are Fields, $80,000, and Unger, $60,000. Net income or net loss is shared equally. On page 7 of a general journal, record the admission of Singh to the partnership on January 1, 2013, assuming that Fields sells one-half of her interest to Singh for $39,000 in cash. Omit the description.

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Question 32

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Mary Ann Mason operates a sole proprietorship business that sells craft supplies. On January 1, 2013, Mason has agreed to transfer her assets and liabilities to a partnership that will operate The Craft Company. Mason will own a one-third interest in the capital of the partnership. The agreed upon values of assets and liabilities to be transferred follow. Accounts receivable of $2,000 (of which approximately $200 is uncollectible) Merchandise inventory, $4,000 Furniture and fixtures, $6,000 Accounts payable, $1,000 Record the receipt of the assets and liabilities by the partnership on page 1 of a general journal. Omit the description.

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Question 33

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Garvey, Lopes, and Russell are partners, sharing profits and losses in the ratio of 35, 35, and 30 percent respectively. Their partnership agreement provides that if one of them withdraws from the partnership, the assets and liabilities are to be revalued, the gain or loss allocated to the partners, and the retiring partner paid the balance of his account. Garvey withdraws from the partnership on December 31, 2013. The capital account balances before recording revaluation are Garvey, $280,000; Lopes, $230,000; and Russell, $290,000. The effect of the revaluation is to increase Merchandise Inventory by $44,000 and the Building account balance by $76,000. How much cash will be paid to Garvey?

The entry to record the investment of cash in a partnership by one partner would consist of a debit to

Ryan Fuller, a sole proprietor, entered into partnership with another individual. Fuller's investment in the partnership included equipment that cost $32,000 when it was purchased. The equipment has a book value of $13,000 and a net agreed-on value of $16,000. In the financial records of the partnership, this equipment and its accumulated depreciation should be recorded at

The partners' salary and interest allowances are recorded in

The partnership ____________________ is a written contract that specifies the rights and responsibilities of the partners.

The entry to record a partner's interest allowance includes a debit to the ____________________ account.

Madison and Hamilton are partners who share profits and losses equally. The partnership agreement provides that Madison will be paid an annual salary of $40,000 and Hamilton will be paid an annual salary of $30,000. The salaries were paid to the partners during 2013 and were charged to the partners' drawing accounts. The Income Summary account has a credit balance of $80,000 after revenue and expense accounts are closed at the end of the year. 1. What amount of net income or loss will be allocated to Madison? 2. What amount of net income or loss will be allocated to Hamilton?

Federal income tax is levied on

Match the accounting terms with the description by entering the proper number.

The characteristic of a partnership that means that any partner can make valid contracts for the partnership is known as ___________________.

Blake Kredell owns and operates a retail business called Blake's Camera Shop. His postclosing trial balance on December 31, 2013, is provided below. Blake plans to enter into a partnership with Carmen Santos, effective January 1, 2014. Profits and losses will be shared equally. Blake will transfer all assets and liabilities of his store to the partnership, after revaluation. Santos will invest cash equal to Blake's investment after revaluation. The agreed values are: Accounts Receivable (net), $7,500; Merchandise Inventory, $27,000; and Store Equipment, $8,000.The partnership will operate under the name Picture Perfect. Record each partner's investment on page 1 of a general journal. Omit descriptions. Prepare a balance sheet for Picture Perfect just after the investments.

Roy Reynolds and Mike Truesdale are partners. To expand the expertise of their business, they have agreed to admit Jennie Fellows to the partnership on January 1, 2013. The capital account balances on January 1, 2013, after revaluation of assets, are Reynolds, $80,000, and Truesdale, $60,000. Net income or net loss is shared equally. On page 20 of a general journal, record the admission of Fellows to the partnership on January 1, 2013, assuming that Fellows invests $46,000 for 20 percent interest in the business. Omit the descriptions.

If an individual invests more cash for an interest in an existing partnership than the book value of his or her interest, the old partners are said to receive a(n) ___________________.

Wright and Beard are partners. Net income or loss is allocated on the basis of the balances of the partners' capital accounts at the beginning of the year. On January 1, 2013, the balances were Wright, $42,000, and Beard, $18,000. Net loss for the partnership for the year ended December 31, 2013, was $9,000. 1. How much of the net loss will be allocated to Wright? 2. How much of the net loss will be allocated to Beard?

Which of the following statements is correct?

Norma and Marilyn are partners. The partnership agreement provides that Norma will receive a salary of $30,000 and Marilyn will receive a salary of $50,000. These salaries were paid to the partners during 2013 and were charged to the partners' drawing accounts. Both partners also receive 8 percent on their capital balances at the beginning of the year. The balance of any remaining profits or losses is divided equally. The beginning capital account balances for 2013 were Norma, $80,000, and Marilyn, $40,000. At the end of the year, the partnership has a net income of $90,000. 1. What amount of net income or loss will be allocated to Norma? 2. What amount of net income or loss will be allocated to Marilyn?

Some partners, known as limited partners, may not be personally liable for the debts of the partnership.

The dissolution of a partnership and the formation of a new partnership may have no noticeable effect on the continuing operations of the business.