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Exam 19: Accounting for Partnerships

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Question 1

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James Cavanaugh, proprietor, has agreed to take on a partner. The market value of his net assets are $105,000 with book assets having a net value of $95,000. In the newly created partnership, Cavanaugh's capital will reflect the $95,000 book value of existing assets contributed to the new organization.

A) True
B) False

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Question 2

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If a new partner purchases an interest in a partnership firm directly from an existing partner, the Cash account is debited and the new partner's capital account is credited.

A) True
B) False

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Question 3

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The partners' salary and interest allowances are recorded in

Partnership net income of $135,000 is to be divided between two partners, Ross Trane and Jane Winder, according to the following arrangement: There will be salary allowances of $40,000 for Trane and $50,000 for Winder, with the remainder divided one-third and two-thirds respectively per their partnership agreement. How much of the net income will be distributed to Trane and Winder, respectively?

The financial statement prepared to summarize the changes in partner's capital accounts is the--------.

Wright and Beard are partners. Net income or loss is allocated on the basis of the balances of the partners' capital accounts at the beginning of the year. On January 1, 2019, the balances were Wright, $62,400, and Beard, $33,600. Net loss for the partnership for the year ended December 31, 2019, was $16,000. 1. How much of the net loss will be allocated to Wright? 2. How much of the net loss will be allocated to Beard?

The entry to record a partner's salary allowance consists of

DMadison and Hamilton are partners who share profits and losses equally. The partnership agreement provides that Madison will be paid an annual salary of $40,000 and Hamilton will be paid an annua salary of $30,000. The salaries were paid to the partners during 2019 and were charged to the partners' drawing accounts. The Income Summary account has a credit balance of $92,000 after revenue and expense accounts are closed at the end of the year. 1. What amount of net income or loss will be allocated to Madison? 2. What amount of net income or loss will be allocated to Hamilton?

Establishing a fiscal year and specifying the accounting method to be used in the partnership are important elements of the partnership agreement.

Which of the following statements is correct?

Martinez and Lopez are partners in business named Builders' Services. For the year ended December 31, 2019, net income for Builders' Services was $60,000. Net income or loss is allocated on the basis of the balances of the partners' capital accounts at the beginning of the year. On January 1, 2019, the balances were Martinez, $70,400, and Lopez, $57,600. 1. How much of the net income will be allocated to Martinez? 2. How much of the net income will be allocated to Lopez?

Mavis and Roxanne are partners who share profits and losses equally. The partnership agreement provides that Mavis will be paid an annual salary of $54,000 and Roxanne will be paid an annual salary of $36,000. The salaries were paid to the partners during 2019 and were charged to the partners' drawing accounts. The Income Summary account has a debit balance of $10,000 after revenue and expense accounts are closed at the end of the year. 1. What amount of net income or loss will be allocated to Mavis? 2. What amount of net income or loss will be allocated to Roxanne?

Identify and discuss the key characteristics of partnerships and partner agreements.

Upon withdrawal, the withdrawing partner(s)may receive less than his/her capital account balances.

Federal income tax is levied on

Kaitlyn Fields and Tyler Unger are partners. To expand the expertise of their business, they have agreed to admit Serena Singh to the partnership on January 1, 2019. The capital account balances on January 1, 2019, after revaluation of assets, are Fields, $80,000, and Unger, $60,000. Net income or net loss is shared equally. On page 7 of a general journal, record the admission of Singh to the partnership on January 1, 2019, assuming that Fields sells one-half of her interest to Singh for $39,000 in cash. Omit the description.

Investments by a partner are credited to that partner's capital account.

Salary and interest allowances are considered in distributing net income to partners but not in distributing a net loss.

Each partner is empowered to act as an agent for the partnership creating binding agreements no matter what the agreement concerns.

Valerie Wong and Samantha Wall are partners and together have equity of $150,000 in the partnership. Sarah wishes to become a partner with ¼ interest in the firm. If her investment reflects the cash paid, how much will she contribute to the partnership?