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Exam 16: Reporting and Analyzing Partnerships

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Question 61

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A partnership agreement:

A) Is not binding unless it is in writing.
B) Is the same as a limited liability partnership.
C) Is binding even if it is not in writing.
D) Does not generally address the issue of the rights and duties of the partners.
E) Is also called the articles of incorporation.

F) B) and E)
G) D) and E)

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Question 62

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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. The partners have agreed to share income and losses equally. Prepare the journal entries to record the transactions required to dissolve this partnership.

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Question 63

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Partnership accounting is the same as accounting for:

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

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

A partnership has a limited life.

Mutual agency means

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?

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

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.

A partner can be admitted into a partnership by _________________________ or by __________________________________.

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:

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:

What factors should be considered before establishing a partnership?

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

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?

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

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 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 ______________________________.

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.