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Exam 12: Accounting for Partnerships

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Question 71

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Masters, Hardy, and Rowen are dissolving their partnership. Their partnership agreement allocates income and losses equally among the partners. The current period's ending capital account balances are Masters, $15,000; Hardy, $15,000; Rowen, $(2,000) . After all the assets are sold and liabilities are paid, but before any contributions to cover any deficiencies, there is $28,000 in cash to be distributed. Rowen pays $2,000 to cover the deficiency in his account. The general journal entry to record the final distribution would be:

A) Debit Masters, Capital $14,000; debit Hardy, Capital $14,000; credit Cash $28,000.
B) Debit Masters, Capital $15,000; debit Hardy, Capital $15,000; credit Rowen, Capital $2,000; credit Cash $28,000.
C) Debit Masters, Capital $9,334; debit Hardy, Capital $9,333; debit Rowen, Capital $9,333; credit Cash $28,000.
D) Debit Masters, Capital $15,000; debit Hardy, Capital $15,000; credit Cash $30,000.
E) Debit Cash $28,000; debit Rowen, Capital $2,000; credit Masters, Capital $15,000; credit Hardy, Capital $15,000.

F) A) and E)
G) A) and C)

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Question 72

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What factors should be considered before establishing a partnership?

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Anyone considering forming a partnership...

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Question 73

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If the partners agree on a formula to share income and say nothing about losses, then the losses are shared using the same formula.

Mutual agency means

Barber and Atkins are partners in an accounting firm and share net income and loss equally. Barber's beginning partnership capital balance for the current year is $285,000, and Atkins' beginning partnership capital balance for the current year is $370,000. The partnership had net income of $250,000 for the year. Barber withdrew $90,000 during the year and Atkins withdrew $100,000. What is Atkins's return on equity?

Peters and Chong are partners and share equally in income or loss. Peters' current capital balance is $140,000 and Chong's is $130,000. Peters and Chong agree to accept Aaron with a 30% interest in the partnership. Aaron invests $98,000 in the partnership. The amount credited to Aaron's capital account is:

The partnership agreement for Wilson, Pickett & Nelson, a general partnership, provided that profits be shared between the partners in the ratio of their financial contributions to the partnership. Wilson contributed $100,000, Pickett contributed $50,000 and Nelson contributed $50,000. In the partnership's first year of operation, it incurred a loss of $110,000. What amount of the partnership's loss, rounded to the nearest dollar, should be absorbed by Nelson?

Assume that the M & L partnership agreement gave March 60% and Ludwig 40% of partnership income and losses. The partnership lost $27,000 in the current period. This implies that March's share of the loss equals $16,200, and Ludwig's share equals $10,800.

Advantages of a partnership include:

When a partner is unable to pay a capital deficiency:

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 $60,000. The balance in Caitlin's capital account immediately after Paul's admission is:

What are the ways a partner can withdraw from a partnership? Explain how to account for the withdrawal of a current partner from a partnership.

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