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Exam 12: Accounting for Partnerships

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Question 51

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A partnership has an unlimited life.

A) True
B) False

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Question 52

Multiple Choice

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Groh and Jackson are partners. Groh's capital balance in the partnership is $64,000, and Jackson's capital balance $61,000. Groh and Jackson have agreed to share equally in income or loss. Groh and Jackson agree to accept Block with a 25% interest. Block will invest $35,000 in the partnership. The bonus that is granted to Block equals:

A) $5,000.
B) $2,500.
C) $6,667.
D) $3,333.
E) $0, because Block must actually grant a bonus to Groh and Jackson.

F) B) and D)
G) A) and B)

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Question 53

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Smith, West, and Krug form a partnership. Smith contributes $180,000, West contributes $150,000, and Krug contributes $270,000. Their partnership agreement calls for a 5% interest allowance on the partner's capital balances with the remaining income or loss to be allocated equally. If the partnership reports income of $174,000 for its first year, what amount of income is credited to Krug's capital account?

Mutual agency means

___________________________ means that partners can commit or bind the partnership to any contract within the scope of the partnership business.

Armstrong withdraws from the FAP Partnership. The remaining partners agree to buy out her share for her capital balance of $35,000. Prepare the journal entry to record the withdrawal from the partnership.

Partnership accounting:

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

Salary allowances are reported as salaries expense on a partnership income statement.

Badger and Fox are forming a partnership. Badger invests a building that has a market value of $350,000; the partnership assumes responsibility for a $125,000 note secured by a mortgage on the property. Fox invests $100,000 in cash and equipment that has a market value of $75,000. For the partnership, the amounts recorded for the building and for Badger's Capital account are:

What are the ways that a new partner can be admitted to an existing partnership? Explain how to account for the admission of the new partner under each of these circumstances.

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

On May 1, Fine and Max formed a partnership. Fine contributed cash of $90,000 and equipment valued at $152,000. Max contributed land valued at $120,000 and a building valued at $250,000. The partnership also assumed responsibility for Max's $110,000 long-term note payable associated with the land and building. The partners agreed to share income as follows: Fine is to receive a salary allowance of $38,000, both are to receive an annual interest allowance of 8% of their beginning-year capital investments, and any remaining income or loss is to be shared equally. During the year, Fine withdrew $40,000 and Max withdrew $42,000 cash. After the adjusting and closing entries are made to the revenue and expense accounts at the end of the year, the Income Summary account had a credit balance of $140,000. Prepare the journal entries to record (a) the partners' initial capital investments, (b) their cash withdrawals, and (c) closing of both the Withdrawals and Income Summary accounts.

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

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

Jane and Castle are partners and share equally in income or loss. Jane's current capital balance is $140,000 and Castle's is $130,000. Jane and Castle agree to accept Sean with a 30% interest in the partnership. Sean invests $108,000 in the partnership. The amount credited to Sean's capital account is:

Badger and Fox are forming a partnership. Badger invests a building that has a market value of $350,000; the partnership assumes responsibility for a $125,000 note secured by a mortgage on the property. Fox invests $100,000 in cash and equipment that has a market value of $75,000. For the partnership, the amounts recorded for Badger's Capital account and for Fox's Capital account are:

Partners in a partnership are taxed on ____________________, not on their withdrawals.

Benson is a partner in B&D Company. Benson's share of the partnership income is $18,600 and her average partnership equity is $155,000. Her partner return on equity equals 8.33. $18,600/$155,000 = 12%

A partnership cannot use salary allowances or interest allowances to allocate income and losses to the partners because these items are not reported on the partnership income statement.