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Exam 3: Partnerships

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Question 1

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Unlimited liability of partners is

A) The agreement between partners that sets forth the terms under which the affairs of the partnership will be conducted
B) In the absence of a contrary agreement,the legal responsibility of partners in a partnership to share all losses equally
C) The legal relationship between partners in which all the partners must share liability for the partnership debts,but only up to the amount of their capital accounts
D) The legal relationship among the partners whereby each partner is an agent of the partnership and is able to bind the partnership to contracts within the apparent scope of the partnership's business
E) The legal relationship among general partners that makes each of them responsible for paying all the debts of the partnership if the other partners are unable to pay their shares

F) A) and B)
G) None of the above

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Question 2

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Explain the type of information needed to prepare journal entries to record the formation of a partnership.

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When partners invest in a partnership,the current fair value of their individual contributions is credited to each partner's capital account.Partners normally contribute assets which are debited to the appropriate asset account.Partners may contribute assets that have related liabilities.The liabilities assumed by the partnership are credited to the appropriate liability account.

Question 3

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When a partner leaves a partnership,the partnership ends.

Assets invested by a partner into a partnership remain the property of the individual partner.

In the absence of a partnership agreement,the law says that income of a partnership will be shared equally by the partners.

Partnership accounting

Rachel,Jenna and Lauren are partners with capital balances of $80,000,$10,000,and $10,000,respectively.Profit for the year is $150,000.Prepare the necessary journal entries to close Income Summary to the capital accounts if:(a)The partners agree to divide income based on their beginning-of-year capital balances.(b)The partners agree to divide income based on the ratio of 5:3:2,respectively.(c)The partnership agreement is silent as to division of income.

Salary and interest allowances are reported as expenses on a partnership income statement.

Lauren and Jenna formed a partnership with capital contributions with a fair value of $145,000 and $125,000,respectively.Their partnership agreement calls for Lauren to receive a $10,000 annual salary allowance.Also,each partner is to receive a share of earnings equal to a 5% return on capital investments.The remaining income or loss is to be divided equally.If the profit for the year is $148,000,then Lauren and Jenna's respective shares are

If at the time of partnership liquidation,Claire has a $7,000 capital deficiency and pays the partnership $7,000 to cover the deficiency,then Claire is entitled to share in the final distribution of cash.

Cook and Parker formed a partnership with capital contributions of $50,000 and $60,000 respectively.Their partnership agreement called for Cook to receive a $9,000 annual salary allowance,and each partner to receive a share of profit equal to a 5% return on capital investments.The remaining income or loss is to be divided 50% to Cook and 50% to Parker.If the profit for the year is $105,000,what are Cook and Parson's respective shares? Prepare the required closing entry.

An unincorporated association of two or more persons to carry on a business for profit as co-owners is called a

Discuss the options for the allocation of income and loss among partners.

The equity section of the balance sheet of a partnership usually shows the individual capital account balance of each partner.

When a partner is unable to pay a capital deficiency

With the consent of the other partners,Frank decides to sell one half of his $50,000 interest in the DDB Partnership to Bob privately for $22,500.Prepare the journal entry to record the transaction.

If partners devote their time and services to their partnership,their salaries are expenses on the income statement.

In a limited partnership the general partner has unlimited liability.

A partner can withdraw from a partnership by

The TJR Partnership recorded the following journal entry: $\begin{array}{|l|r|r|}\hline \text { Cash } & 20,000 \\\hline \text { B. Tara, Capital } & 2,000 \\\hline \text { R. Jillian, Capital } & 2,000 \\\hline\text { S. Rose, Capital }&&24,000\\\hline\end{array}$ The transaction reflects