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Exam 3: Partnerships

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Question 21

Multiple Choice

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Partnership accounting

A) Uses a capital account for each partner
B) Uses a withdrawals account for each partner
C) Allocates profit according to the partnership agreement
D) Allocates losses according to the partnership agreement
E) All of these

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

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Question 22

Multiple Choice

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The withdrawals account of each partner is

A) Credited when closed to his/her capital account
B) Debited when closed to his/her capital account
C) A permanent account and not closed
D) Credited with his/her share of profit
E) Debited with his/her share of losses

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

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Question 23

Multiple Choice

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When a new partner is added to a partnership

Phillip and Herbert formed a partnership.Phillip contributed $40,000 cash and accounts receivable worth $12,000.Herbert's investment included cash,$3,000; inventory,$10,000; and supplies,$4,000.(All values are current fair market values).Prepare the journal entry to record the formation of the partnership.

Matrix and Bentley invested $40,000 and $50,000,respectively,in a partnership they began one year ago.Assuming the partnership's profit was $140,000 for this year; calculate the share of the profit each partner should receive under the following assumptions.(1)The partnership agreement specifies a salary allowance of $25,000 to Matrix and $30,000 to Bentley,and the balance shared equally.(2)The partnership agreement specifies a salary allowance of $25,000 to Matrix and $30,000 to Bentley,10% interest on their investments,and the balance shared equally.

Moreau invested $18,000 and Fereday invested $32,000 in a partnership.They agreed to share incomes and losses by allowing a $9,000 per year salary allowance to Moreau and a $12,000 per year salary allowance to Fereday,plus interest on the partners' investments at 8%,with the balance to be shared equally.Under this agreement,the shares of the partners with a $80,000 profit are

Explain the steps involved in the liquidation of a partnership.

Mutual agency means each partner can bind or commit the partnership to any contract within the scope of the partnership's business.

When a partner leaves a partnership,the withdrawing partner is entitled to a bonus if the recorded equity is overstated.

If a partner is unable to cover a deficiency and the other partners absorb the deficiency,then that partner is thus relieved of all liability.

The partners of the Blue Tooth Partnership agree to liquidate.After all liabilities of $100,000 are paid,the capital account balances are: Wong,$80,000; Winslow,$70,000; and Peters,($4,000).Peters is unable to pay his capital deficiency.Assume the partners have no agreement for sharing profits and losses.Prepare the journal entries required to end the partnership.

A partnership is an unincorporated association of two or more people to pursue a business for profit as co-owners.

Discuss the accounting issues involved in the admission or withdrawal of a partner from a partnership.

A partnership designed to protect innocent partners from malpractice or negligence claims resulting from acts of another partner is a

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

William and Smith formed a partnership with Scott who contributed $100,000,William who contributed $30,000,and Smith who contributed $70,000.Their partnership agreement called for the earnings division to be based on the ratio of capital investments.If the partnership had a profit of $475,000 for its first year of operation,how much would be credited to Smith's capital account?

The partners of the Blue Tooth Partnership agree to liquidate.After all liabilities of $100,000 are paid,the capital account balances are: Wong,$80,000; Winslow,$70,000; and Peters,($4,000).Peters agrees to pay $4,000 in cash to settle his deficiency.Prepare the journal entries required to end the partnership.

Disadvantages of a partnership include

When the current market value of a partnership is greater than the recorded amounts of equity,the partners usually require the new partner to pay a bonus for joining.

Yee,Young,and Kong form a partnership.Yee contributes $50,000 cash,Young contributes $10,000 in cash and equipment with and fair value of $32,000 and Kong contributes cash of $15,000.Prepare the journal entry to record the formation of the partnership.