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Quiz 3 Chapter 12
CHAPTER12
ACCOUNTINGFORPARTNERSHIPS
CHAPTERSTUDYOBJECTIVES
1.Identifythecharacteristicsofthepartnershipformofbusinessorganization.
2.Explaintheaccountingentriesfortheformationofapartnership.
3.Identifythebasesfordividingnetincomeornetloss.
4.Describetheformandcontentofpartnershipfinancialstatements.
5.Explaintheeffectsoftheentriestorecordtheliquidationofapartnership.
6.Explaintheeffectsoftheentrieswhenanewpartnerisadmitted.
7.Describetheeffectsoftheentrieswhenapartnerwithdrawsfromthefirm.
TRUE-FALSESTATEMENTS
1. Thepersonalassets,liabilities,andpersonaltransactionsofpartnersareexcludedfrom theaccountingrecordsofthepartnership.
2. Theactofanypartnerisbindingonallotherpartnersiftheactappearstobeappropriate forthepartnership.
3. Amajoradvantageofthepartnershipformoforganizationisthatthepartnershave unlimitedliability.
4. Partnershipcreditorsmayhaveaclaimonthepersonalassetsofanyofthepartnersifthe
partnershipassetsarenotsufficienttosettleclaims.
5. Thepartnershipagreementbetweenpartnersmustbeinwriting.
6. Ifapartnerinvestsnoncashassetsinapartnership,theyshouldberecordedbythe partnershipattheirfairmarketvalue.
7. L.Hillinveststhefollowingassetsinanewpartnership:$15,000incash,andequipment
thatcost$30,000buthasabookvalueof$17,000andfairmarketvalueof$20,000.Hill, Capitalwillbecreditedfor$32,000.
8. Twoproprietorshipscannotcombineandformapartnership.
9. Ifapartner'sinvestmentinapartnershipconsistsofequipmentthathasaccumulated depreciationof$8,000,itwouldnotbeappropriateforthepartnershiptorecordthe
accumulateddepreciation.
10. Ifapartner'sinvestmentinapartnershipconsistsofAccountsReceivableof$25,000and
anAllowanceforDoubtfulAccountsof$7,000,itwouldnotbeappropriateforthe partnershiptorecordthe AllowanceforDoubtfulAccounts.
11. Unlessstatedotherwiseinthepartnershipcontract,profitsandlossesaresharedamong
thepartnersintheratiooftheircapitalequitybalances.
12. Ifsalaryallowancesandinterestoncapitalarestipulatedinthepartnershipprofitandloss
sharingagreement,theyareimplementedonlyifincomeissufficienttocovertheamounts requiredbythesefeatures.
13. Unlessthepartnershipagreementspecificallyindicatesanincomeratio,partnershipnet incomeorlossisnotallocatedtothepartners.
AccountingforPartnerships 12-5
14. Partnershipincomeorlossneednotbeclosedtopartners'capitalaccountseachperiod becauseoftheunlimitedlifecharacteristicofpartnerships.
15. Ifapartnershiphasalossfortheperiod,theclosingentrytotransferthelosstothe
partnerswillrequireacredittotheIncomeSummaryaccount.
16. Thepartners'drawingaccountsareclosedeachperiodintotheIncomeSummary account.
17. Salaryallowancestopartnersareamajorexpenseonmostpartnershipincome
statements.
18. Aninterestallowanceinsharingpartnershipnetincome(ornetloss)isrelatedtothe
amountofpartners'investedcapital duringtheperiod.
19. Thefinancialstatementsofapartnershiparesimilartothoseofaproprietorship.
20. Theincomeearnedbyapartnershipwillalwaysbegreaterthantheincomeearnedbya proprietorshipbecauseinapartnershipthereismorethanoneownercontributingtothe
successofthebusiness.
21. ThefunctionofthePartners'CapitalStatementistoexplainthechangesinpartners'
capitalaccountbalancesduringaperiod.
22. Adetailedlistingofalltheassetsinvestedbyapartnerinapartnershipappearsonthe
Partners'CapitalStatement.
23. Totalpartners'equityofapartnershipisequaltothesumofallpartners'capitalaccount
balances.
24. Thedistributionofcashtopartnersinapartnershipliquidationisalwaysmadebasedon thepartners'incomesharingratio.
25. Theliquidationofapartnershipmeansthatanewpartnerhasbeenadmittedtothe partnership.
a26. Theadmissionofanewpartnerresultsinthelegaldissolutionoftheexistingpartnership andthebeginningofanewpartnership.
a27. Ifanewpartnerisadmittedintoapartnershipbyinvestment,thetotalassetsandtotal capitalwillchange.
a28. Abonustooldpartnersresultswhenthenewpartner'scapitalcreditonthedateof admittanceisgreaterthanhisorherinvestmentinthefirm.
a29. Ifanewpartnerinvestsinapartnershipatbookvalueandacquiresa1/4interestintotal partnershipcapital,itindicatesthatabonuswaspaidtotheoriginalpartners.
a30. Abonustotheremainingpartnersresultswhenaretiringpartnerreceivespartnership
assetswhicharelessthanhisorhercapitalbalanceonthedateofwithdrawal.
AdditionalTrue-FalseQuestions
31. Apartnershipisanassociationofnomorethantwopersonstocarryonasco-ownersofa
businessforprofit.
32. Onceassetshavebeeninvestedinthepartnership,theyareownedjointlybyallpartners.
33. Eachpartner'sinitialinvestmentinapartnershipshouldberecordedatbookvalue.
34. Partnershipincomeissharedinproportiontoeachpartner'scapitalequityinterestunless thepartnershipcontractspecificallyindicatesthemannerinwhichnetincomeornetloss
istobedivided.
35. Inaliquidation,thefinaldistributionofcashtopartnersshouldbeonthebasisoftheir incomeratios.
a36. Inanadmissionofapartnerbyinvestmentofassets,thetotalnetassetsandtotalcapital
ofthepartnershipdonotchange.
a37. Thewithdrawalofapartnerlegallydissolvesthepartnership.
MULTIPLECHOICEQUESTIONS
38. Ahybridformofbusinessorganizationwithcertainfeatureslikeacorporationisa(n) a.limitedliabilitypartnership.
b.limitedliabilitycompany. c."S"corporation.
d.sub-chapter"S"corporation.
39. Apartnership
a.hasonlyoneowner.
b.paystaxesonpartnershipincome. c.mustfileaninformationtaxreturn.
d.isnotanaccountingentityforfinancialreporting purposes.
40. Ageneralpartnerinapartnership
a.hasunlimitedliabilityforallpartnershipdebts. b.isalwaysthegeneralmanagerofthefirm.
c.isthepartnerwholacksaspecialization.
d.isliableforpartnershipliabilitiesonlytotheextentofthatpartner'scapitalequity.
AccountingforPartnerships 12-7
41. Theindividualassetsinvestedbyapartnerinapartnership a.revertbacktothatpartnerifthepartnershipliquidates.
b.determinethatpartner'sshareofnetincomeorlossfortheyear.
c.arejointlyownedbyallpartners.
d.determinethescopeofauthorityofthatpartner.
42. Whichoneofthefollowingwouldnotbeconsideredadisadvantageofthepartnership formoforganization?
a.Limitedlife
b.Unlimitedliability c.Mutualagency
d.Easeofformation
43. Thepartnershipformofbusinessis
a.restrictedtolawandmedicalpractices.
b.restrictedtofirmshavingfewerthan10partners.
c.notrestrictedtoanyparticulartypeofbusiness. d.mostoftenusedinrelativelylargecompanies.
44. Whichofthefollowingisnotaprincipalcharacteristicofthepartnershipformofbusiness organization?
a.Mutualagency
b.Associationofindividuals c.Limitedliability
d.Limitedlife
45. Thepartnershipagreementshouldincludeeachofthefollowingexceptthe
a.dateofthepartnershipinception.
b.principallocationofthefirm.
c.survivingfamilymembersintheeventofapartner'sdeath. d.Eachoftheseshouldbeincluded.
46. Whichofthefollowingstatementsistrueregardingtheformofalegallybinding
partnershipcontract?
a.Thepartnershipcontractmustbeinwriting.
b.Thepartnershipcontractmaybebasedonahandshake. c.Thepartnershipcontractmaybeimplied.
d.Thepartnershipcontractcannotbe oral.
47. Whichofthefollowingstatementsaboutapartnershipiscorrect?
a.Thepersonalassetsofapartnerareincludedinthepartnershipaccountingrecords. b.Apartnershipisnotrequiredtofileaninformationtaxreturn.
c.Eachpartner'sshareofincomeistaxabletothepartnership.
d.Apartnershiprepresentsanaccountingentityforfinancialreportingpurposes.
48. Inapartnership,mutualagencymeans
a.eachpartneractsonhisownbehalfwhenengaginginpartnershipbusiness.
b.theactofanypartnerisbindingonallotherpartners,onlyifpartnersactwithintheir copeofauthority.
c.anactbyapartnerisjudgedasbindingonotherpartnersdependingonwhetherthe
actappearstobeappropriateforthepartnership.
d.thatpartnersmustpaytaxesonamutualorcombinedbasis.
12-8 TestBankforAccountingPrinciples,EighthEdition
49. Apartnership
a.isdissolvedonlybythewithdrawalofapartner.
b.isdissolvedupontheacceptanceofanewpartner. c.dissolutionmeansthebusinessmustliquidate.
d.hasunlimitedlife.
50. Thepartnerinalimitedpartnershipthathasunlimitedliabilityisreferredtoasthe a.leadpartner.
b.headpartner.
c.generalpartner.d.unlimitedpartner.
51. Limitedpartnerships
a.musthaveatleastonegeneralpartner.
b.guaranteethatapartnerwillreceiveareturn.
c.guaranteethatapartnerwillgetbackhisoriginalinvestment.
d.arelimitedtoonlythreepartners.
52. TheMaris-Cranepartnershipisterminatedwhencreditorclaimsexceedpartnership
assetsby$40,000.CraneisamillionaireandMarishasnopersonalassets.Maris'
partnershipinterestis75%andCrane'sis25%.Creditors
a.mustcollecttheirclaimsequallyfromMarisandCrane.
b.maycollecttheentire$40,000fromCrane.
c.mustcollecttheirclaims75%fromMarisand25%fromCrane.
d.maynotrequireCranetousehispersonalassetstosatisfythe$40,000inclaims.
53. Whichofthefollowingstatementsaboutpartnershipsisincorrect? a.Partnershipassetsareco-ownedbypartners.
b.Ifa partnership isterminated,the assets do not legallyrevert totheoriginal contributor.c.Ifthepartnershipagreementdoesnotspecifythemannerinwhichnetincomeistobe
shared,itisdistributedaccordingtocapitalcontributions.
d.Eachpartnerhasaclaimonassetsequaltothebalanceinthepartner'scapital
account.
54. Whichofthefollowingisnotanadvantageofthepartnershipformofbusiness? a.Mutualagency
b.Easeofformation
c.Easeofdecisionmaking
d.Freedomfromgovernmentalregulationsandrestrictions
55. ThelargestcompaniesintheUnitedStatesareprimarilyorganizedas a.limitedpartnerships.
b.partnerships. c.corporations.
d.proprietorships.
56. Thebasisfordividingpartnershipnetincomeornetlossisreferredtoasanyofthe followingexceptthe
a.incomeratio.
b.incomeandlossratio. c.profitandlossratio.d.incomesharingratio.
AccountingforPartnerships 12-9
57. Whichofthefollowingstatementsisincorrectregardingpartnershipagreements?
a.Itmaybereferredtoasthe“articlesofco-partnership.”
b.Oralagreementsarepreferabletowrittenarticles.
c.Itshouldspecifythedifferentrelationshipsthataretoexistamongthepartners.
d.Itshouldstateproceduresforsubmittingdisputestoarbitration.
58. Nortoninvestspersonallyownedequipment,whichoriginallycost$110,000andhas
accumulateddepreciationof$30,000intheNortonandKennettpartnership.Bothpartners agreethatthefairmarketvalueoftheequipmentwas$60,000.Theentrymadebythe partnershiptorecordNorton'sinvestmentshouldbe
a.Equipment............................................................................ 110,000AccumulatedDepreciation—Equipment...................... 30,000 Norton,Capital............................................................. 80,000
b.Equipment............................................................................ 80,000
Norton,Capital............................................................. 80,000
c.Equipment............................................................................
60,000
LossonPurchaseofEquipment.......................................... 20,000 AccumulatedDepreciation—Equipment............................... 30,000
Norton,Capital............................................................. 110,000 d.Equipment............................................................................
60,000
Norton,Capital............................................................. 60,000
59. PartnerBisinvestinginapartnershipwithPartnerA.Bcontributesaspartofhisinitial investment,AccountsReceivableof$80,000;anAllowanceforDoubtfulAccountsof
$12,000;and$8,000cash.TheentrythatthepartnershipmakestorecordB'sinitial
contributionincludesa
a.credittoB,Capitalfor$88,000.
b.debittoAccountsReceivablefor$68,000. c.credittoB,Capitalfor$76,000.
d.debittoAllowanceforDoubtfulAccountsfor$12,000.
60. Whichofthefollowingwouldnotberecordedintheentryfortheformationofa
partnership?
a.Accumulateddepreciation
b.Allowancefordoubtfulaccounts c.Accountsreceivable
d.Allofthesewouldberecorded.
61. BobisinvestinginapartnershipwithJerry.Bobcontributesequipmentthatoriginallycost $63,000,hasabookvalueof$30,000,andafairmarketvalueof$39,000.Theentrythat thepartnershipmakestorecordBob'sinitialcontributionincludesa
a.debittoEquipmentfor$33,000. b.debittoEquipmentfor$63,000.
c.debittoEquipmentfor$39,000.
d.credittoAccumulatedDepreciationfor$33,000.
62. Apartnercontributes,aspartofherinitialinvestment,accountsreceivablewithan allowancefordoubtfulaccounts.Whichofthefollowingreflectsapropertreatment?
12-10TestBankforAccountingPrinciples,EighthEdition
a.Thebalanceoftheaccountsreceivableaccountshouldberecordedonthebooksof thepartnershipatitsnetrealizablevalue.
b.Theallowanceaccountmaybesetuponthebooksofthepartnershipbecauseit
relatestotheexistingaccountsthatarebeingcontributed.
c.Theallowanceaccountshouldnotbecarriedontothebooksofthepartnership.
d.Theaccountsreceivableandallowanceshouldnotberecordedonthebooksofthe partnershipbecauseapartnermustinvestcashinthebusiness.
63. Whichoneofthefollowingwouldnotbeconsideredanexpenseofapartnershipin determiningincomefortheperiod?
a.Expiredinsurance
b.Salaryallowancetopartners
c.Suppliesused
d.Freight-out
64. Apartnerinvestsintoapartnershipabuildingwithanoriginalcostof$90,000and
accumulateddepreciationof$40,000.Thisbuildinghasa$70,000fairmarketvalue.Asa
resultoftheinvestment,thepartner’scapitalaccountwillbecreditedfor
a.$70,000. b.$50,000. c.$90,000. d.$120,000.
Usethefollowinginformationforquestions65–67.
JamesandLauraareformingapartnership.Jameswillinvestatruckwithabookvalueof $10,000andafairmarketvalueof$14,000.Laurawillinvestabuildingwithabookvalueof $30,000andafairmarketvalueof$42,000withamortgageof$15,000.
65. Atwhatamountshouldthebuildingberecorded?
a.$30,000
b.$27,000 c.$42,000 d.$45,000
66. WhatamountshouldberecordedinLaura’scapitalaccount?
a.$30,000
b.$27,000 c.$42,000 d.$14,000
67. WhatamountshouldberecordedinJames’capitalaccount? a.$30,000
b.$27,000 c.$42,000 d.$14,000
68. SpeirandPablodecidetoorganizeapartnership.Speirinvests$15,000cash,andPablo contributes$12,000cashandequipmenthavingabookvalueof$6,000.Choosetheentry
torecordPablo’sinvestmentinthepartnershipassumingtheequipmenthasafairmarket valueof$9,000.
AccountingforPartnerships 12-11
a.Cash..................................................................................... 12,000
Equipment........................................................................... 6,000
Pablo,Capital............................................................. 18,000 b.Equipment........................................................................... 6,000
Pablo,Capital............................................................. 6,000 c.Cash.....................................................................................
12,000
Pablo,Capital............................................................. 12,000 d.Cash..................................................................................... 12,000
Equipment........................................................................... 9,000
Pablo,Capital............................................................. 21,000
Usethefollowinginformationforquestions69–71.
PartnersAbelandCainhavecapitalbalancesinapartnershipof$40,000and$60,000,
respectively.Theyagreetoshareprofitsandlossesasfollows:
Abel Cain
Assalaries $10,000 $12,000 Asinterestoncapitalatthebeginningoftheyear 10% 10% Remainingprofitsorlosses
50% 50%
69. Ifincomefortheyearwas$50,000,whatwillbethedistributionofincometoCain?
a.$23,000
b.$27,000 c.$20,000
d.$10,000
70. Ifincomefortheyearwas$30,000,whatwillbethedistributionofincometoAbel?
a.$13,000
b.$77,000 c.$10,000
d.$14,000
71. Ifnetlossfortheyearwas$2,000,whatwillbethedistributiontoCain? a.$12,000income
b.$1,000income c.$1,000loss
d.$2,000loss
72. PartnersJimandJoehaveagreedtoshareprofitsandlossesinan80:20ratio respectively,afterJimisallowedasalaryallowanceof$140,000andJoeisalloweda
salaryallowanceof$70,000.Ifthepartnershiphadnetincomeof$140,000for2008, Joe’sshareoftheincomewouldbe
a.$70,000. b.$56,000. c.$84,000. d.$14,000.
12-12TestBankforAccountingPrinciples,EighthEdition
73. Themostappropriatebasisfordividingpartnershipnetincomewhenthepartnersdonot
plantotakeanactiveroleindailyoperationsis
a.onafixedratio.
b.interestoncapitalbalancesandsalariestothepartners. c.onaratiobasedaveragecapitalbalances.
d.salariestothepartnersandtheremainderonafixedratio.
74. TheSmithandJonespartnershipagreementstipulatesthatprofitsandlosseswillbe
sharedequallyaftersalaryallowancesof$160,000forSmithand$80,000forJones.At thebeginningoftheyear,Smith'sCapitalaccounthadabalanceof$320,000,whileJones'
Capitalaccounthadabalanceof$280,000.Netincomefortheyearwas$200,000.The
balanceofJones'Capitalaccountattheendoftheyearafterclosingis
a.$380,000. b.$80,000.c.$340,000.
d.$360,000.
75. Apartner'sshareofnetincomeisrecognizedintheaccountsthrough a.adjustingentries.
b.closingentries.
c.correctingentries.
d.accrualentries.
76. ThepartnershipofNottandReesereportsnetincomeof$60,000.Thepartnersshare equallyinincomeandlosses.Theentrytorecordthepartners'shareofnetincomewill
includea
a.credittoIncomeSummaryfor$60,000.
b.credittoNott,Capitalfor$30,000.
c.debittoReese,Capitalfor$30,000.d.credittoReese,Drawingfor$30,000.
77. PartnerAreceives$210,000andPartnerBreceives$140,000inasplitof$350,000net income.Whichexpressiondoesnotreflecttheincomesplittingarrangement?
a.3:2
b.3/5&2/5 c.6:4
d.2:1
78. Anincomeratiobasedoncapitalbalancesmightbeappropriatewhen
a.serviceisa primaryconsideration.
b.some,butnotall,partnersplantoworkinthebusiness.
c.fundsinvestedinthepartnershipareconsideredthecriticalfactor. d.littlenetincomeisexpected.
79. Ifthepartnershipagreementspecifiessalariestopartners,interestonpartners'capital, andtheremainderonafixedratio,andpartnershipnetincomeisnotsufficienttocover
bothsalariesandinterest,
a.onlysalariesareallocatedtothepartners.
b.onlyinterestisallocatedtothepartners.
c.theentirenetincomeissharedonafixedratio.
d.bothsalariesandinterestareallocatedtothepartners.
AccountingforPartnerships 12-13
80. Whichofthefollowingwouldnotbeconsideredanexpenseofapartnershipin
determiningincomefortheperiod?
a.Expiredinsuranceb.Incometaxexpense c.Rentexpense
d.Utilitiesexpense
Usethefollowinginformationforquestions81–82.
ThenetincomeofthePineandMilespartnershipis$180,000.Thepartnershipagreement specifiesthatPineandMileshaveasalaryallowanceof$48,000and$72,000,respectively.The
partnershipagreementalsospecifiesaninterestallowanceof10%oncapitalbalancesatthe beginningoftheyear.Eachpartnerhadabeginningcapitalbalanceof$120,000.Anyremaining netincomeornetlossissharedequally.
81. WhatisPine'sshareofthe$180,000netincome?
a.$48,000
b.$60,000 c.$66,000 d.$78,000
82. WhatisthebalanceofMiles'Capitalaccountattheendoftheyearafternetincomehas
beendistributed?
a.$204,000 b.$192,000 c.$222,000 d.$210,000
83. ThenetincomeoftheTorreyandGorepartnershipis$250,000.Thepartnership
agreementspecifiesthatprofitsandlosseswillbesharedequallyaftersalaryallowances
of$200,000(Torrey)and$150,000(Gore)havebeenallocated.Atthebeginningofthe year,Torrey'sCapitalaccounthadabalanceof$500,000andGore'sCapitalaccounthad
abalanceof$650,000.WhatisthebalanceofGore'sCapitalaccountattheendofthe
yearafterprofitsandlosseshavebeendistributed?
a.$650,000 b.$100,000 c.$750,000 d.$775,000
84. Apartners'capitalstatementexplains
a.theamountoflegalliabilityofeachofthepartners.
b.thetypesofassetsinvestedinthebusinessbyeachpartner.
c.howthepartnershipwillbecapitalizedifanewpartnerisadmittedtothepartnership.d.thechangesineachpartner'scapitalaccountandintotalpartnershipcapitalduringa
period.
85. Eachofthefollowingisusedinpreparingthepartners’capitalstatementexceptthe a.balancesheet.
b.incomestatement.
c.partners’capitalaccounts.d.partners’drawingaccounts.
12-14TestBankforAccountingPrinciples,EighthEdition
86. Theowners'equitystatementforapartnershipiscalledthe
a.partners'proportionalstatement.
b.partners'capitalstatement.
c.statementofshareholders'equity.
d.capitalanddrawingstatement.
87. Whichofthefollowingwouldnotcauseanincreaseinpartnershipcapital? a.Drawings
b.Netincome
c.Additionalcapitalinvestmentbythepartners
d.Initialcapitalinvestmentbythepartners
88. JillGrier'scapitalstatementrevealsthatherdrawingsduringtheyearwere$50,000.She
madeanadditionalcapitalinvestmentof$25,000andhershareofthenetlossforthe
yearwas$10,000.Herendingcapitalbalancewas$200,000.WhatwasJillGrier's beginningcapitalbalance?
a.$225,000 b.$185,000 c.$235,000 d.$260,000
89. BillWrenstartedtheyearwithacapitalbalanceof$180,000.Duringtheyear,hisshareof
partnershipnetincomewas$160,000andhewithdrew$30,000fromthepartnershipfor personaluse.Hemadeanadditionalcapitalcontributionof$50,000duringtheyear.The amountofBillWren'scapitalbalancethatwillbereportedontheyear-endbalancesheet willbe
a.$160,000. b.$390,000. c.$300,000. d.$360,000.
90. ThePartners'CapitalStatementfortheUnitedCenterreportedthefollowinginformationin total:
Capital,January1..................................................$120,000
Additionalinvestment............................................. 40,000
Drawings................................................................ 80,000 Netincome............................................................. 100,000
Thepartnershiphasthreepartners:Moon,Garr,andRicewithendingcapitalbalancesin aratio40:20:40.Whataretherespectiveendingbalancesof thethreepartners?
a.Moon,$80,000;Garr,$40,000;Rice, $80,000. b.Moon,$72,000:Garr,$36,000;Rice, $72,000.
c.Moon,$136,000;Garr,$68,000;Rice,$136,000.
d.Moon,$90,000;Garr,$48,000;Rice, $90,000.
AccountingforPartnerships 12-15
91. ThetotalcolumnofthePartners'CapitalStatementforNorth Companyis asfollows:
Capital,January1................................................. Additionalinvestment............................................
Drawings...............................................................
Netincome............................................................
$150,000 60,000 90,000 180,000
Thepartnershiphasthreepartners.Thefirsttwopartnershaveendingcapitalbalances thatareequal.Theendingbalanceofthethirdpartnerishalfoftheendingbalanceofthe firstpartner. Whatistheendingcapitalbalanceofthethirdpartner?
a.$72,000 b.$48,000 c.$60,000 d.$66,000
92. Thepartners'drawingaccountsare
a.reportedontheincomestatement. b.reportedonthebalancesheet.
c.closedtoIncomeSummary.
d.closedtothepartners'capitalaccounts.
93. TheUniformPartnershipActprovidesthat
a.apurchaserofapartnershipinterestisnotapartneruntilheorsheisacceptedinto thefirmbythecontinuingpartners.
b.apartnermustobtaintheapprovalofotherpartnersbeforesellinghisorherinterest.c.thepricepaidinapurchaseofpartner'sinterestmustbeequaltothecapitalequity
acquired.
d.thepricepaidinapurchaseofpartner'sinterestmustbegreaterthanthecapital equityacquired.
94. Thebalancesheetofapartnershipwill
a.reportretainedearningsbelowthepartnershipcapitalaccounts. b.showaseparatecapitalaccountforeachpartner.
c.showaseparatedrawingaccountforeachpartner.
d.showtheamountofincomethatwasdistributedtoeachpartner.
95. Theliquidationofapartnershipmayresultfromeachofthefollowingexceptthe
a.bankruptcyofthepartnership.
b.deathofapartner.
c.retirementofapartner.
d.saleofthebusinessbythepartners.
96. Intheliquidationofapartnership,anygainorlossontherealizationofnoncashassets shouldbeallocated
a.firsttocreditorsandtheremaindertopartners.
b.tothepartnersonthebasisoftheircapitalbalances.
c.tothepartnersonthebasisoftheir income-sharingratio. d.onlyafterallcreditorshavebeenpaid.
97. Intheliquidationofapartnership,anypartnerwhohasacapitaldeficiency a.hasapersonaldebttothepartnershipfortheamountofthedeficiency.
b.isautomaticallyterminatedasapartner.
c.willreceiveacashdistributiononlyonthebasisofhisorherincome-sharingratio. d.isnotobligatedtomakeupthecapitaldeficiency.
12-16TestBankforAccountingPrinciples,EighthEdition
98. PartnersA,B,andChavecapitalaccountbalancesof$120,000each.Theincomeand lossratiois5:2:3,respectively.Intheprocessofliquidatingthepartnership,noncash assetswithabookvalueof$100,000aresoldfor$40,000.ThebalanceofPartnerB's Capitalaccountafterthesaleis
a.$90,000. b.$102,000.
c.$108,000. d.$132,000.
Usethefollowinginformationforquestions99–101.
Thepartners'incomeandlosssharingratiois2:3:5,respectively.
D,E,ANDFPARTNERSHIP BalanceSheetDecember31,2008
Assets LiabilitiesandOwners'Equity
Cash
Noncashassets
Total
$90,000 570,000
$660,000
Liabilities D,Capital E,Capital F,Capital
Total
$300,000 120,000 180,000
60,000$660,000
99. IftheD,E,andFPartnershipisliquidatedbysellingthenoncashassetsfor$390,000and creditorsarepaidinfull,whatistheamountofcashthatcanbesafelydistributedtoeach partner?
a.D,$72,000;E,$108,000;F,$0.
b.D,$84,000;E,$126,000;F,$30,000. c.D,$69,000;E,$111,000;F,$0.
d.D,$66,000;E,$114,000;F,$0.
100. IftheD,E,andFPartnershipisliquidatedbysellingthenoncashassetsfor$750,000, andcreditorsarepaidinfull,whatisthetotalamountofcashthatPartnerDwillreceivein
thedistributionofcashtopartners?
a.$36,000 b.$234,000
c.$156,000 d.$150,000
101. IftheD,E,andFPartnershipisliquidatedandthenoncashassetsareworthless,the creditorswilllooktowhatpartner'spersonalassetsforsettlementofthecreditors'claims? a.ThepersonalassetsofPartnerE.
b.ThepersonalassetsofPartnersDandF.
c.ThepersonalassetsofPartnersD,E,andF.
d.Thepersonalassetsofthepartnersarenotavailableforpartnershipdebts.
AccountingforPartnerships 12-17
102. Ifapartnerhasacapitaldeficiencyanddoesnothavethepersonalresourcestoeliminate
it,
a.thecreditorswillhavetoabsorbthecapitaldeficiency.
b.theotherpartnerswillabsorbthecapitaldeficiencyonthebasisoftheirrespective
capitalbalances.
c.theotherpartnerswillhavetoabsorbthecapitaldeficiencyonthebasisoftheir respectiveincomesharingratios.
d.neitherthecreditorsnortheotherpartnerswillhavetoabsorbthecapitaldeficiency.
103. Whenapartnershipterminatesbusiness,thesaleofnoncashassetsiscalled a.liquidation.
b.realization. c.recognition.
d.disposition.
104. Theliquidationofapartnership
a.cannotbeavoluntaryactofthepartners. b.terminatesthebusiness.
c.eliminatesthosepartnerswithacapitaldeficiency. d.cannotoccurunlessallpartnersapprove.
105. Theliquidationofapartnershipisaprocesscontainingthefollowingsteps:
1.Paypartnershipliabilitiesincash.
2.Allocatethegainorlossonrealizationtothepartnersontheirincomeratios. 3.Sellnoncashassetsforcashandrecognizeagainorlossonrealization.
4.Distributeremainingcashtopartnersonthebasisoftheirremainingcapitalbalances.
Identifythepropersequencingofthestepsintheliquidationprocess. a.3,2,4,1.
b.3,2,1,4. c.1,3,2,4. d.1,4,3,2.
106. Inthefinalstepoftheliquidationprocess,remainingcashisdistributedtopartners
a.onanequalbasis.
b.onthebasisoftheincomeratios.
c.onthebasisoftheremainingcapitalbalances. d.regardlessofcapitaldeficiencies.
107. Intheliquidationprocess,ifacapitalaccountshowsadeficiency
a.thepartnerwithadeficiencyhasanobligationtothepartnershipfortheamountofthe
deficiency.
b.itmaybewrittenofftoa"Loss"account.
c.itisdisregardeduntilafterthepartnershipbooksareclosed.
d.itcanbewrittenofftoa"Gain"account.
108. Beforedistributinganyremainingcashtopartnersinapartnershipliquidation,itis
necessarytodoeachof thefollowingexcept
a.sellnoncashassetsforcash.
b.recognizeagainorlossonrealization.
c.allocatethegainorlosstothepartnersbasedontheircapitalbalances.
d.paypartnershipliabilitiesincash.
12-18TestBankforAccountingPrinciples,EighthEdition
109. Kate,Sue,andTinaformedapartnershipwithincome-sharingratiosof50%,30%,and
20%,respectively.Cashof$180,000wasavailableafterthepartnership’sassetswere
liquidated.Priortothefinaldistributionofcash,Kate’scapitalbalancewas$200,000,
Sue’scapitalbalancewas$150,000,andTinahadacapitaldeficiencyof$50,000.Based uponacashpaymentsschedule,Kateshouldreceive
a.$175,000. b.$168,750. c.$131,250. d.$200,000.
110. A,BandCarepartners,sharingincome2:1:2.Aftersellingalloftheassetsforcash, dividinggainsandlossesonrealization,andpayingliabilities,thebalancesinthecapital accountsareasfollows:A,$10,000Cr;B,$10,000Cr;andC,$30,000Cr.Howmuch cashshouldbedistributedtoA?
a.$6,000 b.$20,000 c.$10,000 d.$16,667
111. Inliquidation,balancespriortothedistributionofcashtothepartnersare:Cash$300,000;
Moorman,Capital$140,000;Simpson,Capital$130,000,andKelton,Capital$30,000. Theincomeratiois6:2:2,respectively.Howmuchcashshouldbedistributedto Moorman?
a.$125,000 b.$136,250 c.$140,000 d.$150,000
112. Assumethesamefactsinquestion111above,exceptthatthereisonly$255,000incash andKeltonhasacapitaldeficiencyof$15,000.Howmuchcashshouldbedistributedto
SimpsonifKeltondoes notpayhisdeficiency?
a.$122,500 b.$126,250 c.$118,750 d.$130,000
a113. D.Givenspurchasesa25%interestfor$30,000whentheSuppan,Porter,James partnershiphastotalcapitalof$270,000.PriortotheadmissionofGivens,eachpartner hasacapitalbalanceof$90,000.Eachpartnerrelinquishesanequalamountofhiscapital balancetoGivens.TheamounttoberelinquishedbyJamesis
a.$15,000. b.$19,000. c.$22,500. d.$37,500.
a114.Bryantisadmittedtoapartnershipwitha25%capitalinterestbyacashinvestmentof
$90,000.Iftotalcapitalofthepartnershipis$390,000beforeadmittingBryant,thebonus
toBryantis
a.$30,000. b.$15,000. c.$45,000. d.$60,000.
AccountingforPartnerships 12-19
Usethefollowinginformationforquestions115–116.
CarleyandKingmanarepartnerswhoshareincomeandlossesintheratioof3:2,respectively.
OnAugust31,theircapitalbalanceswere:Carley,$175,000andKingman,$150,000.Onthat date,theyagreetoadmitLernerasapartnerwithaone-thirdcapital interest.
a115.IfLernerinvests$125,000inthepartnership,whatisCarley'scapitalbalanceafter
Lerner'sadmittance?
a.$150,000 b.$158,333 c.$160,000 d.$175,000
a116.IfLernerinvests$200,000inthepartnership,whatisKingman'scapitalbalanceafter Lerner'sadmittance?
a.$175,000 b.$160,000 c.$157,500 d.$150,000
a117.KingandNottarepartnerswhoshareprofitsandlossesequallyandhavecapital
balancesof$560,000and$490,000,respectively.Starrisadmittedintothepartnership byinvesting$490,000for30%capitalinterest.TheaccountbalanceofNott,Capitalafter theadmissionofStarrwouldbe
a.$462,000. b.$476,000. c.$504,000. d.$490,000.
a118.StineandWatsonhavepartnershipcapitalbalancesof$320,000and$240,000, respectively.WatsonnegotiatestosellhispartnershipinteresttoLearyfor$280,000. StineagreestoacceptLearyasanewpartner.Thepartnershipentrytorecordthis transactionis
a.Cash..................................................................................... 280,000
Leary,Capital.............................................................. 280,000 b.Watson,Capital....................................................................
280,000
Leary,Capital.............................................................. 280,000 c.Cash..................................................................................... 40,000
Watson,Capital.................................................................... 240,000
Leary,Capital.............................................................. 280,000 d.Watson,Capital....................................................................
240,000
Leary,Capital.............................................................. 240,000
a119.HillandEddysharepartnershipprofitsandlossesintheratioof6:4.Hill'sCapitalaccount
balanceis$320,000andEddy’sCapitalaccountbalanceis$200,000.Porterisadmittedto
thepartnershipbyinvesting$360,000andistoreceiveaone-fourthownershipinterest.Hill,
Eddy
andPorter's capitalbalancesafter
Porter'sinvestment will be
Hill Eddy Porter
a.$320,000 $200,000 $360,000 b.$404,000 $256,000 $220,000 c.$396,000 $264,000 $220,000 d.$390,000 $270,000 $220,000
12-20TestBankforAccountingPrinciples,EighthEdition
a120.JudyandDebhavepartnershipcapitalaccountbalancesof$600,000and$450,000, respectivelyandshareprofitsandlossesequally.Anneisadmittedtothepartnershipby
investing$250,000foraone-fourthownershipinterest.ThebalanceofDeb'sCapital accountafterAnneisadmittedis
a.$412,500. b.$450,000. c.$487,500. d.$325,000.
a121.Theadmissionofanewpartnertoanexistingpartnership
a.maybeaccomplishedonlybyinvestingassetsinthepartnership.
b.requirespurchasingtheinterestofoneormoreexistingpartners. c.causesalegaldissolutionoftheexistingpartnership.
d.isalmostalwaysaccompaniedbytheliquidationofthebusiness.
a122.Whenapartnershipinterestispurchased
a.everypartner’scapitalaccountisaffected.
b.thetransactionisapersonaltransactionbetweenthepurchaserandtheselling
partner(s).
c.thebuyerreceivesequityequaltotheamountofcashpaid.
d.allpartnerswillreceivesomepartofthepurchaseprice.
a123.AdlerandLynneachsell1/3oftheirpartnershipinteresttoSele,receiving$140,000each.
Atthetimeoftheadmission,eachpartnerhasa$420,000capitalbalance.Theentryto recordtheadmissionofSelewillshowa
a.debittoCashfor$280,000.
b.credittoSele,Capitalfor$420,000. c.debittoLynn,Capitalfor$420,000. d.debittoAdler,Capitalfor$140,000.
a124.BallandGantsell1/4oftheirpartnershipinteresttoIvesreceiving$200,000each.Atthe timeofadmission,BallandGanteachhada$350,000capitalbalance.Theadmissionof Iveswillcausethenetpartnershipassetsto
a.increaseby$400,000.
b.remainat$700,000.
c.decreaseby$400,000.
d.remainat$1,100,000.
a125.ColeandGlennselltoNabba1/3interestintheCole-Glennpartnership.Nabbwillpay ColeandGlenneach$70,000foradmissionintotheorganization.Beforethistransaction, ColeandGlennshowcapitalbalancesof$105,000each.Thejournalentrytorecordthe
admissionofNabbwill
a.showadebittoCashfor$140,000. b.notshowadebittoCash.
c.showadebittoGlenn,Capitalfor$70,000. d.showacredittoNabb,Capitalfor$140,000.
AccountingforPartnerships 12-21
a126.Foxxinvests$20,000incash(admissionbyinvestment)intheMassey-Dixpartnershipto
acquirea1/4interest.Inthiscase
a.theaccountingwillbethesameasapurchaseofaninterest.
b.thetotalnet
assets of thenewpartnershipareunchanged fromthepreviouspartnership. c.thetotalcapitalofthenewpartnershipisgreaterthanthetotalcapitaloftheold
partnership.
d.Foxx'sincomeratiowillautomaticallybe1/4.
a127.Whichofthefollowingiscorrectwhenadmittinganewpartnerintoanexisting partnership?
PurchaseofanInterest AdmissionbyInvestment
a.Totalnetassets unchanged unchanged
b.Totalcapital increased unchanged c.Totalnetassets unchanged increasedd.Totalcapital unchanged unchanged
a128.Whenadmittinganewpartnerbyinvestment,abonustooldpartners
a.isusuallyunjustifiedbecausebookvaluesclearlyreflectpartnershipnetworth.
b.issometimes justifiedbecause
goodwill may exist
andit isnot reflected in
theaccounts. c.resultsifthedebittocashislessthanthenewpartner'scapitalcredit.
d.resultsifthedebittocashisequaltothenewpartner'scapitalcredit.
a129.Whenadmittinganewpartnerbyinvestment,abonustooldpartnersisallocatedon a.thebasisofcapitalbalances.
b.thebasisoftheoriginalinvestmentoftheoldpartners.
c.thebasisofincomeratiosbeforetheadmissionofthenewpartner. d.asenioritybasis.
a130.Abonustoanewpartner
a.isprohibitedbyGAAP.
b.resultswhenthenewpartner'scapitalcreditislessthanhisorherinvestmentof
assetsinthefirm.
c.mayoccurwhenrecordedbookvaluesarelowerthanmarketvalues.
d.resultswhenthenewpartner'scapitalcreditisgreaterthanhisorherinvestmentof assetsinthefirm.
a131.Abonustoanewpartnerwill
a.increasethecapitalbalancesofexistingpartnersbasedontheirincomeratiosbefore
theadmissionofthenewpartner.
b.increasethecapitalbalancesofexistingpartnersbasedontheirincomeratiosafter
theadmissionofthenewpartner.
c.decreasethecapitalbalancesofexistingpartnersbasedontheirincomeratiosbefore
theadmissionofthenewpartner.
d.decreasethecapitalbalancesofexistingpartnersbasedontheircapitalbalances beforetheadmissionofthenewpartner.
a132.Jane,Ken,andMarkhavepartnershipcapitalaccountbalancesof$225,000,$450,000 and$105,000,respectively.TheincomesharingratioisJane,50%;Ken,40%;andMark,
10%.Janedesirestowithdrawfromthepartnershipanditisagreedthatpartnership
assetsof$195,000willbeusedtopayJaneforherpartnershipinterest.Thebalancesof
Ken'sandMark'sCapitalaccountsafterJane'swithdrawalwouldbe
12-22TestBankforAccountingPrinciples,EighthEdition
a.Ken,$450,000;Mark,$105,000. b.Ken,$474,000;Mark,$111,000. c.Ken,$426,000;Mark,$99,000. d.Ken,$435,000;Mark,$90,000.
a133.Ace,Bell,andColehavepartnershipcapitalaccountbalancesof$400,000each.Income andlossesaresharedequally.Coleagreestosellthree-fourthsofhisownershipinterest
toAcefor$350,000andone-fourthtoBellfor$125,000.AceandBellwillusepersonal assetstopurchaseCole'sinterest.Thepartnership'sentrytorecordCole'swithdrawal fromthepartnershipwouldbe
a.Cole,Capital....................................................................... 475,000
Cash.......................................................................... 475,000 b.Cole,Capital.......................................................................
475,000
Ace,Capital............................................................... 350,000 Bell,Capital................................................................ 125,000
c.Cole,Capital....................................................................... 400,000
Ace,Capital............................................................... 300,000 Bell,Capital................................................................ 100,000
d.Ace,Capital........................................................................ 356,250 Bell,Capital......................................................................... 118,750
Cole,Capital............................................................. 475,000
a134.Whenapartnerwithdrawsfromthefirm,whichofthefollowingreflectsthecorrect
partnershipeffects?
Paymentfrom Paymentfrom Partners'PersonalAssetsPartnershipAssets
a.Totalnetassets decreased decreased b.Totalcapital decreased decreased c.Totalnetassets unchanged decreased d.Totalcapital unchanged unchanged
a135.Whichofthefollowingisnotanecessaryactionthatthepartnershipmusttakeuponthe deathofapartner?
a.Determinethenetincomeornetlossfortheyeartodate. b.Discontinuebusinessoperations.
c.Closethebooks.
d.Preparefinancialstatements.
Usethefollowinginformationforquestions136–138.
OnNovember30,capitalbalancesareGray$90,000,Carr$75,000andMelton$75,000.The
incomeratiosare20%,20%and60%,respectively.Graydecidestoretirefromthepartnership.
a136.ThepartnershippaysGray$105,000cashforherpartnershipinterest.AfterGray's retirement,whatisthebalanceof Carr'scapitalaccount?
a.$71,250 b.$72,000 c.$75,000 d.$97,500
AccountingforPartnerships 12-23
a137.ThepartnershippaysGray$75,000cashforherpartnershipinterest.AfterGray's retirement,whatisthebalanceofMelton'scapitalaccount?
a.$66,000 b.$75,000 c.$84,000 d.$86,250
a138.InorderforCarrandMeltontohaveequalcapitalinterestsaftertheretirementofGray, howmuchpartnershipcashwouldhavetobepaidtoGrayforherpartnershipinterest?
a.$0
b.$80,000 c.$90,000
d.AnyamountpaidtoGraywillcauseCarrandMeltontostillhaveequalcapital
balances.
AdditionalMultipleChoiceQuestions
139. Allofthefollowingarecharacteristicsofpartnershipsexcept a.co-ownershipofproperty.
b.mutualagency. c.unlimitedlife.
d.association ofindividuals.
140. TheButkus,Sayers,andHalaspartnershipisterminatedwhentheclaimsofcompany
creditorsexceedpartnershipassetsby$50,000.ThecapitalbalancesforButkus,Sayers,
andHalasare$35,000,$5,000,and$0,respectively.Theoriginalclaimsofthecreditors
werenegotiatedbySayersandHalas.Whichpartner(s)is(are)personallyandindividually
liableforallpartnershipliabilities?
a.Butkus b.Sayers
c.SayersandHalas
d.Butkus,Sayers,andHalas
141. Whenapartnerinvestsnoncashassetsinapartnership,theassetsshouldberecordedat
their
a.bookvalue.
b.carryingvalue.
c.fairmarketvalue. d.originalcost.
142. ThepartnershipagreementofRossiandPetryprovidesforsalaryallowancesof$45,000
toRossiand$35,000toPetry,withtheremainingincomeorlosstobedividedequally. Duringtheyear,RossiandPetryeachwithdrawcashequalto80%oftheirsalary
allowances.Ifpartnershipnetincomeis$100,000,Rossi'sequityinthepartnershipwould
a.increasemorethanPetry’s.
b.decreasemorethanPetry's.c.increasethesameasPetry's. d.decreasethesameasPetry's.
12-24TestBankforAccountingPrinciples,EighthEdition
143. Whichofthefollowingstatementsiscorrect?
a.Salariestopartnersandinterestonpartners'capitalareexpensesofthepartnership.b.Salariestopartnersareexpensesofthepartnershipbutnotinterestonpartners'
capital.
c.Interestonpartners'capitalisanexpenseofthepartnershipbutnotsalariesto partners.
d.Neithersalariestopartnersnorinterestonpartners'capitalareexpensesofthe partnership.
144. Intheliquidationofapartnership,thegainsandlossesfromassetssoldare a.dividedequallyamongthepartners.
b.dividedamongthepartnersinthestatedincomeratio.
c.dividedamongthepartnersinproportiontotheircapitalequityinterests.
d.ignored.
145. Ifapartnerwithacapitaldeficiencyisunabletopaytheamountowedtothepartnership,
thedeficiencyisallocatedtothepartnerswithcreditbalances
a.equally.
b.onthebasisoftheirincomeratios.
c.onthebasisoftheircapitalbalances.
d.onthebasisoftheiroriginalinvestments.
146. Anentryisnotrequiredintheliquidationofapartnershiptorecordthe a.paymentofcashtocreditors.
b.distributionofcashtothepartners.
c.saleofnoncashassets.
d.allocationofacapitaldeficiencytopartnerswithcreditbalanceswhenthedeficient
partnerisexpectedtopaythedeficiency.
147. Thefirststepintheliquidationofapartnershipisto
a.allocateagainorlossonrealizationtothepartners. b.distributeremainingcashtothepartners.
c.paypartnershipliabilities.
d.sellnoncash assetsandrecognizeagainorlossonrealization.
148. BakerjoinsthepartnershipofKubekandMusialbypaying$30,000incash.Ifthenet
assetsofthepartnershiparestillthesameamountafterBakerhasbeenadmittedasa partner,thenBaker
a.musthavebeenadmittedbyinvestmentofassets.
b.musthavebeenadmittedbypurchaseofapartner'sinterest. c.musthavereceivedabonusuponbeingadmitted.
d.couldhavebeenadmittedbyaninvestmentofassetsorbyapurchaseofapartner's
interest.
149. Loweisadmittedtoapartnershipwitha25%capitalinterestbyacashinvestmentof $120,000.Iftotalcapitalofthepartnershipis$520,000beforeadmittingLowe,thebonus toLoweis
a.$40,000. b.$20,000. c.$60,000. d.$80,000.
BRIEFEXERCISES
BE150
BrandyandJohnsondecidetoorganizeapartnership.Brandyinvests$25,000cash,and Johnsoncontributes$5,000andequipmenthavingabookvalueof$3,500andafairmarket
valueof$10,000.
Instructions
Preparetheentrytorecordeachpartner’sinvestment.
BE151
TontoCompanyandRangerCompanydecidetomergetheirproprietorshipsintoapartnership
calledWestwardHoCompany.ThebalancesheetofRangerCompanyshows:
AccountsReceivable
Less:Allowancefordoubtfulaccounts
Equipment
Less:Accumulateddepreciation
$15,000
1,500
$20,000
10,000
$13,500
$10,000
Thepartnersagreethatthenetrealizablevalueofthereceivablesis$12,500andthatthefair
marketvalueoftheequipmentis$15,000.
Instructions
Indicatehowthefouraccountsshouldappearintheopeningbalancesheetofthepartnership.
BE152
TheJill&FrillCo.reportsnetincomeof$28,000.InterestallowancesareJill$3,000andFrill
$5,000;partnersalaryallowancesareJill$18,000andFrill$10,000andtheremainderisshared equally.
Instructions
Indicatethedivisionofnetincometoeachpartner,andpreparetheentrytodistributethenet
income.
BE153
DebaugeCo.hadbeginningcapitalbalancesonJanuary1,2008,asfollows:NickFoley$30,000
andTomWenger$25,000.Duringtheyear,drawingswereFoley$15,000andWenger$8,000.
Netincomewas$50,000,andthepartnersshareincomeequally.
Instructions
Preparethepartners’capitalstatementfortheyear.
BE154
Afterliquidatingnoncashassetsandpayingcreditors,accountbalancesintheMainCo.areCash
$29,000,ACapital(Cr.)$11,000,BCapital(Cr,)$8,000andCCapital(Cr.)$10,000.The
partnersshareincomeequally.
Instructions
Journalizethefinaldistributionofcashtothepartners.
BE155
BarnesCompanyatDecember31hascash$40,000,noncashassets$200,000,liabilities
$110,000,andthefollowingcapitalbalances:Carpenter$90,000andPendleton$40,000.The firmisliquidated,and$240,000incashisreceivedforthenoncashassets.Carpenterand Pendletonincomeratiosare60%and40%,respectively.
Instructions
Prepareacashdistributionschedule.
BE156
InNelsonCo.,capitalbalancesareOzzie$60,000andHarriet$75,000.Thepartnersshare
incomeequally.Dennyisadmittedtothefirmwitha40%interestbyaninvestmentofcashof $65,000.JournalizetheadmissionofDenny.
BE157
BobandKathyarepartnerswhoshareprofits60%and40%.Theircapitalbalanceswereboth $90,000beforeBettywasadmittedtothepartnership.Bettycontributed$120,000incashtothe partnershipfora30%interest.
Instructions
ComputethecapitalbalancesofBobandKathyafterBettyisadmittedtothepartnership.
AccountingforPartnerships 12-29
BE158
CapitalbalancesinJetsonCo.areGeorge$50,000,Jane$38,000,andFrank$25,000.The partnersshareincomeequally.Frankreceives$35,000frompartnershipassetsinwithdrawing
fromthefirm.
Instructions
JournalizethewithdrawalofFrank.
BE159
Mike,Andy,andJoearepartnerswhoshareprofits40%,20%,and40%.Theircapitalbalances
were$630,000,$420,000,and$210,000,respectively,beforeJoe’sretirement.Joewaspaid $270,000frompartnershipassetstobuyhisinterest.
Instructions
ComputethecapitalbalancesofMikeandAndyafterJoehaswithdrawn.
EXERCISES
Ex.160
DickAcerandGeorgeDooleydecidetoformapartnership.Acerinvests$25,000cashand
accountsreceivableof$30,000lessallowancefordoubtfulaccountsof$2,000.Dooley contributes$20,000cashandequipmenthavinga$6,000bookvalue.Itisagreedthatthe allowanceaccountshouldbe$3,000andthefairmarketvalueoftheequipmentis$10,000.
Instructions
Preparethenecessaryjournalentrytorecordtheformationofthepartnership.
Ex.161
KenLottandJimStineoperateseparateautorepairshops.OnJanuary1,2008,theydecideto combinetheirseparatebusinesseswhichwereoperatedasproprietorshipstoformL&SAuto Repair,apartnership.Informationfromtheirseparatebalancesheetsispresentedbelow:
Cash
Accountsreceivable
Allowancefordoubtfulaccounts Accountspayable
Notespayable Salariespayable
Equipment
Accumulatedamortization—Equipment
LottAutoRepair $10,000
9,000 1,000
5,000
— 1,000
12,000 2,000
StineAutoRepair $12,000
10,000 500 6,000 3,000 1,500 24,000
4,000
ItisagreedthattheexpectedrealizablevalueofLott'saccountsreceivableis$8,000andStine's
receivablesis$7,000.ThefairmarketvalueofLott'sequipmentis$13,000andthevalueof Stine'sequipmentis$20,000.Itisfurtheragreedthatthenewpartnershipwillassumeall
liabilitiesoftheproprietorshipswiththeexceptionofthenotespayableonStine'sbalancesheet whichhewillpayhimself.
Instructions
Preparethejournalentriesnecessarytorecordtheformationofthepartnership.
AccountingforPartnerships 12-31
Ex.162
TheSmithandWilsonpartnershipreportsnetincomeof$45,000.Partnersalaryallowancesare
Smith$18,000andWilson$12,000.Anyremainingincomeisshared60:40.
Instructions
Determinetheamountofnetincomeallocatedtoeachpartner.
Ex.163
Bass,Ellis,andGorenformedapartnershiponJanuary1,2008.Bassinvested$60,000,Ellis $60,000andGoren$140,000.Basswillmanagethestoreandwork40hoursperweekinthe store.Elliswillwork20hoursperweekinthestore,andGorenwillnotwork.Eachpartner withdrew30percentofhisincomedistributionduring2008.Iftherewasnoincomedistributionto apartner,therewerenowithdrawalsofcash.
Instructions
Computethepartners'capitalbalancesattheendof2008underthefollowingindependent
conditions:(Hint:useTaccountstodetermineeachpartner'scapitalbalances.)
Ex.163 (cont.)
(1) Netincomeis$120,000 andtheincomeratioisBass40%,Ellis35%,andGoren25%.
(2) Netincomeis$140,000andthepartnershipagreementonlyspecifiesasalaryof$50,000to Bassand$30,000toEllis.
(3) Netincomeis$86,000andthepartnershipagreementprovidesfor(a)asalaryof$40,000to
Bassand$40,000toEllis,(b)interestonbeginningcapitalbalancesattherateof10%,and
(c)anyremainingincomeorlossistobesharedbyBass40%,Ellis35%,andGoren25%.
Ex.164
CarlinandLarvehaveapartnershipagreementwhichincludesthefollowingprovisionsregarding
sharingnetincomeornetloss:
1.Asalaryallowanceof$54,000toCarlinand$36,000toLarve.
2.Aninterestallowanceof10%oncapitalbalancesatthebeginningoftheyear.
3.Theremaindertobedivided60%toCarlinand40%toLarve.
ThecapitalbalanceonJanuary1,2008,forCarlinandLarvewas$90,000and$120,000, respectively.During2008,theCarlinandLarvePartnershiphadsalesof$495,000,costofgoods soldof$290,000,andoperatingexpensesof$75,000.
Instructions
PrepareanincomestatementfortheCarlinandLarvePartnershipfortheyearendedDecember 31,2008.Asapartoftheincomestatement,includeaDivisionofNetIncometoeachofthe
partners.
Ex.165
Hope&CrosbyCo.reportsnetincomeof$34,000.Thepartnershipagreementprovidesfor
annualsalariesof$24,000forHopeand$15,000forCrosbyandinterestallowancesof$4,000to
Hopeand$6,000toCrosby.Anyremainingincomeorlossistobeshared70%byHopeand 30%byCrosby.
Instructions
Computetheamountofnetincomedistributedtoeachpartner.
Ex.166
TheadjustedtrialbalanceoftheKarrisandWattsPartnershipfortheyearendedDecember31,
2008,appearsbelow:
KARRISANDWATTSPARTNERSHIP AdjustedTrialBalance
FortheYearEndedDecember31,2008
CurrentAssets....................................................................................... PlantAssets.......................................................................................... CurrentLiabilities................................................................................... Long-termDebt..................................................................................... Karris,Capital........................................................................................ Karris,Drawing...................................................................................... Watts,Capital........................................................................................
Watts,Drawing...................................................................................... Sales..................................................................................................... CostofGoodsSold............................................................................... OperatingExpenses..............................................................................
Debit
19,000
80,000
4,000
7,000
62,000
23,000195,000
Credit
7,000 50,000 20,000
18,000
100,000
195,000
Thepartnershipagreementstipulatesthatadivisionofpartnershipnetincomeornetlossistobe madeasfollows:
1.Asalaryallowanceof$12,000toKarrisand$23,000toWatts. 2.Theremainderistobedividedequally.
Instructions
(a) Prepareaschedulewhichshowsthedivisionofnetincometoeachpartner.
(b) Preparetheclosingentriesforthedivisionofnetincomeandforthedrawingaccountsat
December31,2008.
Ex.167
KimCareyandMaryHallhaveformedtheCHPartnership,andhavecapitalbalancesof $130,000and$100,000,respectively,onJanuary1,2008.OnJune1,2008,Hallinvestedan additional$30,000.Alsoduringtheyear,Careywithdrew$60,000andHallwithdrew$48,000. Salesfortheyearamountedto$360,000andexpenseswere$260,000.CareyandHallshare incomeandlossesona3:1basis.
Instructions
(a) PreparetheclosingentriesatDecember31,2008,fortheCHPartnership.
(b) Prepareapartners'capitalstatementfor2008.
Ex.168
Prepareapartners'capitalstatementforCrestwoodCompanybasedonthefollowinginformation.
Crest Wood
Beginningcapital $30,000 $27,000 Drawingsduringyear 15,000 8,000
Netincomewas$35,000,andthepartnersshareincome60%toCrestand40%toWood.
Ex.169
OnDecember31,ThompsonCompanyhascash$30,000,noncashassets$150,000,and liabilities$80,000.CapitalbalanceswereTerry$55,000andNott$45,000.Thefirmisliquidated, andthenoncashassetsaresoldfor$125,000.TerryandNottshareincomeina60:40ratio.
Instructions
Prepareentriestorecord(a)thesaleofnoncashassetsand(b)theallocationofthegain(loss) onliquidationtothepartners.
AccountingforPartnerships 12-37
Ex.170
TheABCPartnershipistobeliquidatedandyouhavebeenhiredtoprepareaScheduleofCash
Paymentsforthepartnership.PartnersA,B,andCshareincomeandlossesintheratioof4:3:3, respectively.Assumethefollowing:
1.Thenoncashassetsweresoldfor$75,000.
2.Liabilitieswerepaidinfull.
3.Theremainingcashwasdistributedtothepartners.(Ifanypartnerhasacapital
deficiency,assumethatthepartnerisunabletomakeupthecapitaldeficiency.)
Instructions
Usingtheaboveinformation,completetheScheduleofCashPaymentsbelow:
ABCPARTNERSHIP
ScheduleofCashPayments
Item Cash+ Balancesbefore
liquidation 25,000+
Noncash
Assets=
150,000=
Liabilities+
50,000 +
A Capital+
25,000+
B Capital+
35,000+
C
Capital
65,000
Ex.171
TheODSPartnershipistobeliquidatedwhentheledgershowsthefollowing:
Cash
NoncashAssets Liabilities
Oslo,Capital Decker,Capital Silas,Capital
$50,000 200,000
50,000 75,000 100,000 25,000
Oslo,Decker,andSilas'incomeratiosare6:3:1,respectively.
Instructions
Prepareseparateentriestorecordtheliquidationofthepartnershipassumingthatthenoncash
assetsare soldfor$150,000incash.
Ex.172
Priortothedistributionofcashtothepartners,theaccountsofABCCompanyare:Cash
$30,000,AltCapital(Dr.)$10,000,BellCapital(Cr.)$25,000,andColeCapital(Cr.)$15,000. Theyshareincomeona5:3:2basis.
Instructions
Prepareentriestorecord(a)theabsorptionofAlt'scapitaldeficiencybytheotherpartnersand
(b)thedistributionofcashtothepartnerswithcreditbalances.
AccountingforPartnerships 12-39
Ex.173
TheGFPartnershipisliquidatedwhentheledgershows:
Cash
NoncashAssets Liabilities
Grant,Capital Fleming,Capital
$60,000 90,000 44,000 100,000 6,000
GrantandFleming'sincomeratiosare3:2,respectively.
Instructions
Prepareascheduleofcashpayments,assumingthatthenoncashassetsweresoldfor$70,000. Assumethatanypartner’scapitaldeficienciescannotbepaidtothepartnership.
Ex.174
TheHowellandParksPartnershiphaspartnercapitalaccountbalancesasfollows:
Howell,Capital Parks,Capital
$550,000 250,000
Thepartnersshareincomeandlossesintheratioof60%toHowelland40%toParks.
Instructions
PreparethejournalentryonthebooksofthepartnershiptorecordtheadmissionofTylerasa newpartnerunderthefollowingthreeindependentcircumstances.
1.Tylerpays$350,000toHowelland$150,000toParksforone-halfofeachoftheirownership
interestinapersonaltransaction.
2.Tylerinvests$850,000inthepartnershipforaone-thirdinterestinpartnershipcapital. 3.Tylerinvests$175,000inthepartnershipforaone-thirdinterestinpartnershipcapital.
Ex.175
Key,Riser,andStoneshareincomeona6:3:1basis.Theyhavecapitalbalancesof$80,000,
$60,000,and$45,000,respectively,whenHortonisadmittedtothepartnership.
Instructions
PreparethejournalentrytorecordtheadmissionofHortonintothepartnershipifHorton
purchasesone-halfofKey'sequityfor$45,000;one-halfofRiser'sequityfor$22,000;andone-thirdofStone'sequityfor$18,000.
Ex.176
TomRosenandJoeFinneysharepartnershipincomeona3:2basis.Theyhavecapitalbalances
of$560,000and$280,000,respectively,whenEdVannisadmittedtothepartnership.
Instructions
PreparethejournalentrytorecordtheadmissionofVannundereachofthefollowing assumptions:
(a)Vanninvests$340,000fora25%ownershipinterest.
(b)Vanninvests$200,000fora25%ownershipinterest.
(c)Vanninvestsanamountthatgiveshima25%ownershipinterest.
Ex.177
CindyMillsandAmyPetershavecapitalaccountsof$480,000and$420,000,respectively.Bill DennyandMarkMorganaretojointhepartnership.Dennyinvests$450,000inthepartnership
forwhichhereceivesacapitalcreditof$450,000.Morganpurchasesaone-halfinterestfrom Millsfor$300,000andaone-fourthinterestfromPetersfor$90,000.
Instructions
(a) PreparethejournalentriestorecordtheadmissionofDennyandMorgantothepartnership.
(b) DeterminethecapitalbalancesofthepartnersaftertheadmissionofDennyandMorgan.
AccountingforPartnerships 12-43
Ex.178
Adel,Gaines,andYockeyshareincomeandlossesinaratioof3:2:5,respectively.Thecapital accountbalancesofthepartnersareasfollows:
Adel,Capital Gaines,Capital Yockey,Capital
$600,000
360,000 240,000
Instructions
PreparethejournalentryonthebooksofthepartnershiptorecordthewithdrawalofYockey underthefollowingindependentcircumstances:
1.ThepartnersagreethatYockeyshouldbepaid$280,000bythepartnershipforhisinterest. 2.ThepartnersagreethatYockeyshouldbepaid$180,000bythepartnershipforhisinterest.
3.AdelagreestopayYockey$180,000forone-halfofhiscapitalinterestandGainesagreesto payYockey$180,000forone-halfofhiscapitalinterestinapersonaltransactionamongthe
partners.
Ex.179
Dixon,Larsen,andPolleyhavecapitalbalancesof$150,000,$100,000,and$75,000, respectively,andtheirincomeratiosare4:2:4.
Instructions
RecordthewithdrawalofPolleyfromthepartnershipundereachofthefollowingassumptions:
1.Polleyispaid$75,000frompartnershipassets.
2.Polleyispaid$90,000frompartnershipassets. 3.Polleyispaid$55,000frompartnershipassets.
COMPLETIONSTATEMENTS
180.The______________Actprovidesthebasicrulesfortheformationandoperationof partnershipsinmorethan90%ofthestates.
181.Apartnershipcharacteristicwhichenableseachpartnertoactonbehalfofthepartnership whenengaginginpartnershipbusinessiscalled______________.
182.Amajordisadvantageofthepartnershipformoforganizationis______________,which makeseach partnerpersonallyandindividuallyliableforallpartnershipliabilities.
183.Thecapitalaccountsindicateeachpartner's______________investment,whilethe
partner'sdrawingaccountsare______________owner'sequityaccounts.
184.The______________ratiospecifiesthebasisforsharingincomeandlosses.
185.Anincomeratiobasedon______________balancesmaybeappropriatewhenthe
amountoffundsinvestedinthepartnershipiscriticaltothepartnership.
186.A______________allowanceor______________onpartners'capitalaccountsarenot expensesofthepartnershipwhentheyarespecifiedasthebasisforsharingincomeand losses.
187.Inliquidatingapartnership,itisnecessarytoconvert______________intocashandto allocateany______________or______________tothepartnersbasedontheirincome ratios.
188.Adebitbalanceinapartner'scapitalaccountiscalleda_____________.
a189.Anewpartnermaybeadmittedtothepartnershipby______________theinterestofan existingpartner,orby______________assetsinthepartnership.
a190.Whenanewpartner'scapitalinterestonthedateofadmittanceislessthanhisorher investmentinthefirm,a______________resultsforthe______________partner(s).
a191.Ifabonusisgiventoanewpartner,theoldpartners'capitalaccountsaredecreased
basedontheir______________ratiopriortotheadmissionofthenewpartner.
MATCHING
192.Matchtheitemsbelowbyenteringtheappropriatecodeletterinthespaceprovided.
A. MutualagencyB. Unlimitedliability
C.Partnershipagreement D.Incomeratio
E. Partners'capitalstatement
F. Admissionbyinvestment
G. Purchaseofaninterest
H. Partnershipliquidation
I. Capitaldeficiency
J. Distributionofcashtopartnersin
liquidationofapartnership.
____ 1.Eachpartnerispersonallyandindividuallyliableforpartnershipdebts.
____ 2.Madeonbasisofpartners'capitalbalances.
____ 3.Explainschangesinindividualpartner'scapitalaccountsduringaperiod.
____ 4.Eachpartnercanbindthepartnershipsolongastheactionappearstobeappropriate
forthepartnership.
____ 5.Businessterminates.
____a6.Resultsinanincreaseintotalnetassetsandtotalcapitalofthepartnership.
____ 7.Capitalaccountwithadebitbalance.
____ 8.Thebasisforsharingincomeandlosses.
____a9.Totalnetassetsandtotalcapitalofthepartnershipdonotchange.
____10.Writtenorverbalcontractestablishingdutiesandresponsibilitiesofpartners.
SHORT-ANSWERESSAYQUESTIONS
S-AE193
Identifyandexplaintheprincipal characteristicsofthepartnershipformofbusinessorganization.
S-AE194
Apartnershipisliquidatedbysellingthenon-cashassets,payingthecreditorsinfull,and
distributingtheremainingassetstothepartners.Explainwhygainsandlossesontherealization
ofnon-cashassetsaredistributedtothepartnersbasedontheirincomeratios,whereascashis distributedtothepartnersbasedontheirequityasshownintheircapitalaccounts.Whateffects doesthepaymentornonpaymentofacapitaldeficiencyhaveonthedistributionofcashtothe partners?
S-AE195(Ethics)
Threedoctors,FrankWhite,MarkRosen,andSteveJenner,openedafamilymedicineclinic.All threedoctorshadbeenlifelongfriends.Allbelongedtothesamereligiousfaith.Allwerevery
activeinchurchaffairs,andtriedtomoldtheirprofessionalbehaviortotheirreligiousbeliefs.
Aboutayearago,Dr.Whiteannouncedthathewasleavingthechurch.Theothersnoticedthat
hispersonalityalsobegantochange.Hebegantodressinflamboyantstyles,andhestarted wearingexpensive-lookingjewelry.Histemperbecameunstable—oneminutehewascalm,and
thenext,hemightbethrowingchartsdownthehallandscreaming.Hestartedcomingtothe officelate,andforgettingtoseesomeofhispatientsbeforeheleftagain.Theothertwoatfirst werestunnedatthechanges.Hiswifeaskedthemwhethertheythoughthemighthaveadrinking problem.Afterfinallydecidingtoinvestigate,theyfoundwhatlookedtothemlikealargeamount
ofcocaine,(hundredsofplasticsacksofwhitepowder)tuckedawayinboxesofoldmedical
equipment.
Frightened,Drs.RosenandJennerdecidedtoactquickly.Theirpartnershipagreementsaid
nothingaboutdissolvingthepartnership—onlyaboutwhattodoifoneofthemdied.They
thereforesecretlyrentedofficespaceacrosstownandbegantomovethemostnecessary
equipmentandsuppliestothenewoffice.Amonthlater,theychangedthelocksontheoldoffice andbeganseeingpatientsinthenewofficewithoutanynoticetoDr.Whiteatall.Dr.White simplycameinataroundteno'clockasusual,andfoundhimselflockedoutofanemptyoffice.
Required:
DidDrs.RosenandJenneractethicallyintheirendingofthepartnership?Explain.
S-AE196(Communication)
MattJonesandJerryWatsonbegandetailworkonautomobilesasahobby.First,theyuseda
mail-orderkittoadd"pinstriping"totheirowncars,a1968Mustanganda1970GTOJudge,
respectively.ThenMattaddedmoreflourishes,includinghisname.Jerrypracticedpainting
flamesonhisJudge.Gradually,theircarsbecamerecognizedaroundtownandothersbeganto
askthemtoaddaflourishhereortheretotheircars.Theyweretalkedintoattendinga"muscle car"showinanearbylargecitytoshowofftheircars.Theyhadmorerequestsforworkthanthey
couldhandle.Now,theyareconsideringquittingtheirotherjobsandmakingthisapermanent
business.Jerry,forexample,turnsdownmorejobsthanheacceptsandstillgetsmorerequests
everyweek.
S-AE196(cont.)
MattandJerryareunsurehowtoproceed.Theyliketheideaofapartnership,buttheyonlyknow
theyworkwelltogether—thingslikehowtosplitpaymenthavejustbeensettledindividuallyfor
eachjob,dependingonwhichonedidmorework.Matt'sfathersuggestsawrittenpartnership agreement.Mattdisagrees.Hebelievesthatitwillspoilthewholearrangementbyreducingitto
words.
Required:
WriteabriefnotetoMattexplainingwhyheneedsapartnershipagreement.
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