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Exam 12: Accounting for Partnerships

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Question 51

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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:

A) Debit Cash $20,000; credit Prince, Capital $20,000.
B) Debit Cash $50,000; credit Royal, Capital $50,000.
C) Debit Cash $40,000; debit Wallace, Capital $3,000; debit Simpson, Capital, $4,000; debit Prince, Capital $3,000; credit Royal, Capital $50,000.
D) Debit Cash $50,000; credit Simpson, Capital $10,000, credit Royal, Capital $40,000.
E) Debit Wallace, Capital $15,000; debit Simpson, Capital, $20,000; debit Prince, Capital $15,000; credit Royal, Capital $50,000.

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

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Question 52

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

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Question 53

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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:

The following information is available regarding Grace Smit's capital account in Enterprise Consulting Group, a general partnership, for a recent year: $\begin{array}{ll}\text { Beginning of the year balance } & \$ 22,000 \\\text { Share of partnership income } & \$ 8,500 \\\text { Withdrawals made during the vear } & \$ 6,000\end{array}$ What is Smit's partner return on equity during the year in question?

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.

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

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:

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

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:

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

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:

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:

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.

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:

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

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. 1. The partnership contract specifies salary allowances of $45,000 to Lin and $60,000 to Coral, and any balance shared equally. $\begin{array} { | l | l | l | l | } \hline & \text { Lin } & \text { Coral } & \text { Allocated } \\\hline \text { Net Income } & & & \\\hline \text { Salary allowance } & & & \\\hline \text { Remainder } & & & \\\hline \text { Allocation of remainder } & & & \\\hline \text { Total } & & & \\\hline\end{array}$ 2. 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. $\begin{array} { | l | l | l | l | } \hline & \text { Lin } & \text { Coral } & \text { Allocated } \\\hline \text { Net Income } & & & \\\hline \text { Salary allowance } & & & \\\hline \text { Interest allowance } & & & \\\hline \text { Remainder } & & & \\\hline \text { Allocation of remainder } & & & \\\hline \text { Total } & & & \\\hline\end{array}$

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.

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.

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.

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: