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Exam 12: Partnerships

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Question 31

Multiple Choice

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The fact that partnership assets are owned jointly by all partners is called:

A) Mutual agency.
B) Unlimited liability.
C) Co-ownership of property.
D) Limited partnership.
E) Sole proprietorship.

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

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Question 32

Multiple Choice

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If a partnership contract provides for interest at 10% annually on each partner's investment,the interest:

A) Is ignored when earnings are not sufficient to pay interest.
B) Provides for the sharing of a portion of the partnership earnings in the capital ratio.
C) Is an expense of the business.
D) Must be paid in cash.
E) Legally becomes a liability of the partnership.

F) A) and D)
G) C) and D)

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Question 33

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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.

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

Nguyen invested $8,000 and Hansen invested $12,000 in a partnership.They agreed to share incomes and losses by allowing a $9,000 per year salary allowance to Nguyen and a $12,000 per year salary allowance to Hansen,plus interest on the partners' investments at 10%,with the balance to be shared equally.Under this agreement,the shares of the partners with a $51,000 net income are:

Mung and Long allow Kang to join their partnership for $50,000 cash.The recorded value of the equity being purchased is $40,000.Prepare the journal entry to record the admission of Kang to the partnership.Assume the partners have no agreement for sharing profits and losses.

A capital deficiency exists when all partners have a credit balance in their capital accounts.

If at the time of partnership liquidation,Breck has a $5,000 capital deficiency and pays the partnership $5,000 to cover the deficiency,then Breck is entitled to share in the final distribution of cash.

When a partner is unable to pay a capital deficiency:

With the consent of the other partners,Parker decides to sell one half of his $30,000 interest in the ABC Partnership to Lopez privately for $14,000.Prepare the journal entry to record the transaction.

When a new partner is added to a partnership:

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

Armstrong plans to leave the JT Partnership.At this time her capital account is $48,000.The remaining partners,Tanner and Jackson,agree to pay Armstrong $58,000.Prepare the journal entry to record the withdrawal.Assume the partners have no agreement for sharing profits and losses.

Copote and Parsons formed a partnership with capital contributions of $60,000 and $90,000 respectively.Their partnership agreement called for Copote to receive a $12,000 annual salary allowance,and each partner to receive a share of net income equal to a 10% return on capital investments.The remaining income or loss is to be divided 40% to Copote and 60% to Parsons.If the net income for the year is $84,000,what are Copote's and Parson's respective shares?

The withdrawal accounts of each partner are closed to retained earnings.

Disadvantages of a partnership include:

When partners form a partnership,their capital accounts are __________ for the amounts invested.

Armstrong withdraws from the JT Partnership.At this time her capital account is $35,000.The remaining partners agree to pay her $35,000 for her interest.Prepare the journal entry to record the withdrawal.

The partners of the Blue Tooth Partnership agree to liquidate.After all liabilities of $100,000 are paid,the partnership's cash balance is $110,000,and the capital account balances are: Peters,$60,000; Winslow,$20,000; and Wong,$30,000.Prepare the journal entry to distribute the ending cash.

Armstrong is anxious to leave the JT Partnership.At this time her capital account is $48,000.The remaining partners,Tanner and Jackson,agree to pay Armstrong $40,000 in cash.Prepare the journal entry to record the withdrawal.Assume the partners have no agreement for sharing profits and losses.