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Exam 16: Partnership Accounting

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Question 71

Multiple Choice

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When a partner is unable to pay a capital deficiency:

A) The partner must take out a loan to cover the deficient balance.
B) The deficiency is absorbed by the remaining partners before distribution of cash.
C) The partnership ends before distribution of cash.
D) The deficient partner is relieved of the liability.
E) The remaining partners must wait for the deficiency to be paid before cash is distributed.

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

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Question 72

Multiple Choice

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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 $160,000. -The balance in Caitlin's capital account immediately after Paul's admission is:

A) $160,000
B) $140,400
C) $107,200
D) $120,400
E) $99,600

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

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Question 73

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Cinema Products LP is organized as a limited partnership that sells movie props.Information related to the capital balances is given below.Compute the partnership return on equity. $\begin{array} { l l l l } & \text { Turner } & \text { Kelly } & \text { Total } \\\text { Capital balance, begirning of year } &8 9 0 , 0 0 0 & 570,000 & 1,460,000 \\\text { Net income for current year } &8 5 , 0 0 0 & 65,000 & 150,000 \\\text { Withdrawals for current year } & 40,000 & 25,000 & 65,000\end{array}$

When a partnership is liquidated,its business is ended.

Maxwell and Smart are forming a partnership.Maxwell is investing a building that has a market value of $180,000.However,the building carries a $56,000 mortgage that will be assumed by the partnership.Smart is investing $120,000 cash.The balance of Maxwell's Capital account will be:

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.Prepare the journal entries to record the transactions required to dissolve this partnership.

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

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 ________.

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.

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?

The statement of changes in partners' equity shows the beginning balance in retained earnings,plus investments,less withdrawals,plus the income (or less the loss)and the ending balance in retained earnings.

The Redtail Partnership agrees to dissolve.The remaining cash balance after liquidating partnership assets and liabilities is $70,000.The final capital account balances are: Paulson,$35,000; Gray,$25,000; and Chang,$10,000.Prepare the journal entry to distribute the remaining cash to the partners.

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.

Masco,Short,and Henderson who are partners in the MSH Company share income and loss in a 2:2:1 ratio.They plan to liquidate their partnership.At liquidation,their balance sheet appears as follows.Prepare journal entries for (a)the sale of land and equipment sold as a package for $500,000, (b)the allocation of the gain or loss, (c)the payment of the liabilities,and (d)the distribution of cash to the individual partners. MSH Company Balance Sheet January 31 $\begin{array} { | l | l | l | r | } \hline \text { Assets } & & \text { Liabilities and Equity } & \\\hline \text { Cash } & \$ 200,000 & \text { Accounts Payable } & \$ 221,500 \\\hline \text { Equipment } & 200,000 & \text { Masco, Capital } & 210,000 \\\hline \text { Land } & 350,000 & \text { Short, Capital } & 178,000 \\\hline & & \text { Henderson, Capital } & 140,500 \\\hline \text { Total assets } & \$ 750,000 & \text { Total liabilities and equity } & \$ 750,000 \\\hline\end{array}$

The Redtail Partnership agrees to dissolve.The cash balance after selling all assets and paying all liabilities is $56,000.The final capital account balances are: Paulson,$33,000; Gray,$27,000; and Chang, ($4,000).Chang agrees to pay $4,000 cash from personal funds to settle his deficiency.Prepare the journal entries to record the transactions required to dissolve this partnership.

In a Limited Partnership,there must be more than one general partner.

When a partner leaves a partnership,the present partnership ends,but the business can still continue to operate.

Hewlett and Martin are partners.Hewlett's capital balance in the partnership is $64,000,and Martin's capital balance $61,000.Hewlett and Martin have agreed to share equally in income or loss.Hewlett and Martin agree to accept Black with a 25% interest.Black will invest $35,000 in the partnership.The bonus that is granted to Black equals:

Wheadon,Davis,and Singer formed a partnership with Wheadon contributing $60,000,Davis contributing $50,000 and Singer contributing $40,000.Their partnership agreement called for the income (loss) division to be based on the ratio of capital investments.If the partnership had income of $75,000 for its first year of operation,what amount of income (rounded to the nearest thousand) would be credited to Wheadon's capital account?

Match each of the following terms with the appropriate definitions. -A partner who assumes unlimited liability for the debts of the partnership.