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Exam 19: Accounting for Partnerships

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Question 1

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The assets of a sole proprietorship are revalued before they are assumed by a partnership.

A) True
B) False

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Question 2

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Abbott, Casper, and Costello are partners, sharing profits and losses in the ratio of 30, 30, and 40 percent respectively. Their partnership agreement provides that if one of them withdraws from the partnership, the assets and liabilities are to be revalued, the gain or loss allocated to the partners, and the retiring partner paid the balance of his account. Costello withdraws from the partnership on December 31, 2013. The capital account balances before recording revaluation are Abbott, $130,000; Casper $150,000; and Costello, $120,000. The effect of the revaluation is to increase Merchandise Inventory by $5,000 and the Building account balance by $20,000. How much cash will be paid to Costello?

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The increase to Costello's capital accou...

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Question 3

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Sam McGuire and Marcos Valle are partners, and each has a capital balance of $50,000. To gain admission to the partnership, Scott Jordan pays $35,000 directly to Valle for one-half of his equity. After the admission of Jordan, the total partners' equity in the records of the partnership will be

If plant and equipment are transferred from a sole proprietorship to a partnership, the Accumulated Depreciation accounts start with ____________________ balances in the partnership records.

If an individual invests more cash for an interest in an existing partnership than the book value of his or her interests, an entry is made to debit

Walters and Kim are partners. The partnership agreement provides for salary allowances of $26,000 for Walters and $22,000 for Kim and for interest of 10 percent on each partner's invested capital at the beginning of the year. The balance of any remaining profits or losses is to be divided 40 percent to Walters and 60 percent to Kim. On January 1, 2013, the capital account balances were Walters, $75,000, and Kim, $95,000. Net income for the year was $72,000. 1. On page 10 of a general journal, record the following entries on December 31, 2013. Omit descriptions. A) Record the salary allowances for the year. B) Record the interest allowances for the year. C) Record the division of the balance of net income. D) Close the drawing accounts into the capital accounts. Assume that the partners have withdrawn the full amount of their salaries. 2. Prepare a schedule showing the division of net income to the partners as it would appear on the income statement for 2013.

Norton and Morris are partners. The partnership agreement provides that Norton will receive a salary of $26,000 and Morris will receive a salary of $20,000. These salaries were paid to the partners during 2013 and were charged to the partners' drawing accounts. Both partners also receive 10 percent on their capital balances at the beginning of the year. The balance of any remaining profits or losses is divided equally. The beginning capital account balances for 2013 were Norton, $100,000, and Morris, $80,000. At the end of the year, the partnership has a net income of $60,000. 1. What amount of net income or loss will be allocated to Norton? 2. What amount of net income or loss will be allocated to Morris?

Patsy Garrison owns and operates a bakery called Patsy's Pasteries. Her postclosing trial balance on December 31, 2013, is provided below. Garrison plans to enter into a partnership with Erika Noreen, effective January 1, 2014. Profits and losses will be shared equally. Garrison will transfer all assets and liabilities of her store to the partnership, after revaluation. Noreen will invest cash equal to Garrison's investment after revaluation. The agreed values are: Accounts Receivable (net), $15,000; Merchandise Inventory, $54,000; and Store Equipment, $16,000. The partnership will operate under the name Baker's Delight. Record each partner's investment on page 1 of a general journal. Omit descriptions. Prepare a balance sheet for Baker's Delight just after the investments.

Brian McCarthy owns and operates a business called Brian's Music Shop. His postclosing trial balance on December 31, 2013, is provided below. Brian plans to enter into a partnership with Emma Jones, effective January 1, 2014. Profits and losses will be shared equally. Brian will transfer all assets and liabilities of his shop to the partnership, after revaluation. Emma will invest cash equal to Brian's investment after revaluation. The agreed values are: Accounts Receivable (net), $10,000; Merchandise Inventory, $35,000; and Store Equipment, $15,000. The partnership will operate under the name Beautiful Music. Record each partner's investment on page 1 of a general journal. Omit descriptions. Prepare a balance sheet for Beautiful Music just after the investments.

A legal partnership does not exist unless there is a written partnership agreement.

Lenik and Olsen are partners who share profits and losses in the ratio of 60 and 40 percent, respectively. The partnership agreement provides that each will be paid a yearly salary of $19,000. The salaries were paid to the partners during 2013 and were charged to the partners' drawing accounts. The Income Summary account has a debit balance of $4,000 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 Lenik? 2. What amount of net income or loss will be allocated to Olsen?

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

Danny Ortiz and Angela Hufford are partners, and each has a capital balance of $25,000. To gain admission to the partnership, Derek Peters pays $15,000 directly to Ortiz for one-half of his equity. After the admission of Peters, the total partners' equity in the records of the partnership will be

It is customary for a partnership's income statement to show how the net income or loss for the year has been divided between the partners.

Withdrawals of assets from a partnership that are intended to permanently reduce the invested capital are recorded as debits to the partners'____________________ accounts.

Martinez and Lopez are partners in business named Builders' Services. For the year ended December 31, 2013, 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, 2013, the balances were Martinez, $48,000, and Lopez, $24,000. 1. How much of the net income will be allocated to Martinez? 2. How much of the net income will be allocated to Lopez?

Karen Schuler and Mary Ryan are partners. To expand the expertise of their business, they have agreed to admit Samuel Wing to the partnership on January 1, 2013. The capital account balances on January 1, 2013, after revaluation of assets, are Schuler, $80,000, and Ryan, $60,000. Net income or net loss is shared equally. On page 10 of a general journal, record the admission of Wing to the partnership on January 1, 2013, assuming that Wing invests $58,000 for one-third interest in the business. Omit the descriptions.

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

If a partnership's salary and interest allowances are in excess of the net income, the entry to close Income Summary after the allowances are recorded will include a(n) ____________________ to Income Summary.

The entry to record the equal distribution of net income between two partners consists of a debit to