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Exam 19: Accounting for Partnerships

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Question 21

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Ryan Fuller, a sole proprietor, entered into partnership with another individual. Fuller's investment in the partnership included equipment that was purchased for $45,000. The equipment has a book value of $22,000 and a net agreed-on value of $27,000. In the financial records of the partnership, this equipment and its accumulated depreciation should be recorded at

A) $22,000 and $0, respectively.
B) $45,000 and $23,000, respectively.
C) $27,000 and $0, respectively.
D) $45,000 and $18,000, respectively.

E) B) and C)
F) A) and C)

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Question 22

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A partnership has a limited life. It ends with the death or withdrawal of a partner.

A) True
B) False

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Question 23

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Gains on the revaluation of assets and liabilities upon the dissolution of a partnership are taxable to each partner.

Spalding, Dane, and Manson are partners, sharing profits and losses in the ratio of 30, 40, 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. Manson withdraws from the partnership on December 31, 2019. The capital account balances before recording revaluation are Spalding, $230,000; Dane, $250,000; and Manson, $220,000. The effect of the revaluation is to increase Merchandise Inventory by $21,000 and the Building account balance by $41,000. How much cash will be paid to Manson?

At the end of each fiscal year, cash is distributed to each partner in accordance with the profit distribution included in the partnership agreement and is reported on the partner's individual tax return.

Unlike a corporation, a partnership does not pay income tax.

Walters and Kim are partners. The partnership agreement provides for salary allowances of $26,000 for Walters and $22,000 for Kim and for interest of 10 percent on each partner's invested capital at the beginning of the year. The balance of any remaining profits or losses is to be divided 40 percent to Walters and 60 percent to Kim. On January 1, 2019, the capital account balances were Walters, $75,000, and Kim, $95,000. Net income for the year was $72,000. 1. On page 10 of a general journal, record the following entries on December 31, 2019. Omit descriptions. A)Record the salary allowances for the year. B)Record the interest allowances for the year. C)Record the division of the balance of net income. D)Close the drawing accounts into the capital accounts. Assume that the partners have withdrawn the full amount of their salaries. 2. Prepare a schedule showing the division of net income to the partners as it would appear on the income statement for 2019.

Antonio Bandala wishes to retire and sell his partnership interest valued at $170,000 to the remaining partners. Prepare the journal entry to record the withdrawal from the partnership.

The partners of Jones & Wesson agreed that Jones can sell his $50,000 investment in the firm to Smith. Smith pays Jones $60,000. The entry to record the transfer of capital to Smith will include a credit to Smith, Capital for $60,000.

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

Partnership net income of $60,000 is to be divided between two partners, Bob Garcia and Jerry McKernan, according to the following arrangement: There will be salary allowances of $30,000 for Garcia and $20,000 for McKernan, with the remainder divided equally. How much of the net income will be distributed to Garcia and McKernan, respectively?

The entry to close a partner's drawing account at the end of a fiscal period includes a debit to the partner's drawing account.

Kara Johnson and Tyler Jones are partners, and each has a capital balance of $100,000. To gain admission to the partnership, Raiden Nash pays $60,000 directly to Johnson for one-half of her equity. After the admission of Nash, the total partners' equity in the records of the partnership will be

Norton and Morris are partners. The partnership agreement provides that Norton will receive a salary of $26,000 and Morris will receive a salary of $20,000. These salaries were paid to the partners during 2019 and were charged to the partners' drawing accounts. Both partners also receive 10 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 2019 were Norton, $100,000, and Morris, $80,000. At the end of the year, the partnership has a net income of $60,000. 1. What amount of net income or loss will be allocated to Norton? 2. What amount of net income or loss will be allocated to Morris?

Norma and Marilyn are partners. The partnership agreement provides that Norma will receive a salary of $36,000 and Marilyn will receive a salary of $58,000. These salaries were paid to the partners during 2019 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 2019 were Norma, $80,000, and Marilyn, $40,000. At the end of the year, the partnership has a net income of $110,000. 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?

An association of two or more persons to carry on, as co-owners, a business for profit is called a(n)----------.

Abbott, Casper, and Costello are partners, sharing profits and losses in the ratio of 30, 30, and 40 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. Costello withdraws from the partnership on December 31, 2019. The capital account balances before recording revaluation are Abbott, $130,000; Casper $150,000; and Costello, $120,000. The effect of the revaluation is to increase Merchandise Inventory by $5,000 and the Building account balance by $20,000. How much cash will be paid to Costello?

If a partnership's net income is in excess of the salary and interest allowances, the entry to close Income Summary after the allowances are recorded will include a(n)-----------to Income Summary.

The entry to record the salary and interest allowance on capital invested but not withdrawn from the partnership requires a debit to the Income Summary account and a credit to the partner's capital account.

Match the description with the accounting terms.