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Exam 16: Accounting for Partnerships

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Question 21

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The withdrawals account of each partner is:

A) Closed to that partner's capital account with a credit.
B) Closed to that partner's capital account with a debit.
C) A permanent account that is not closed.
D) Credited with that partner's share of net income.
E) Debited with that partner's share of net loss.

F) A) and C)
G) None of the above

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Question 22

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

A) True
B) False

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Question 23

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

A partnership has an unlimited life.

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

Summers and Winters formed a partnership on January 1, 2012. Summers contributed $90,000 cash and equipment with a market value of $60,000. Winters' investment consisted of: cash, $30,000; inventory, $20,000; all at market values. Partnership net income for 2013 and 2012 was $75,000 and $120,000, respectively. Determine each partner's share of the net income for each year, assuming each of the following independent situations: a. Income is divided based on the partners' failure to sign an agreement. b. Income is divided based on a 2:1 ratio (Summers: Winters). c. Income is divided based on the ratio of the partners' original capital investments. d. Income is divided based on partners allowed 12% of the original capital investments, with salaries to Summers of $30,000 and Winters of $25,000 and the remainder to be divided equally. Prepare the journal entry to record the allocation of the 2013 income under alternative (d) above.

Force and Zabala are partners. Force's capital balance in the partnership is $98,000 and Zabala 's capital balance is $53,000. Force and Zabala have agreed to share equally in income or loss. Force and Zabala agree to accept Burns with a 25% interest. Burns will invest $56,000 in the partnership. The total bonus that is granted to the existing partners equals:

Explain the steps involved in the liquidation of a partnership.

During the closing process, each partner's withdrawals account is closed to __________________.

If a partner is unable to cover a deficiency and the other partners absorb the deficiency, then the partner with the deficiency is thus relieved of all liability.

A capital deficiency means that:

Which of the following statements is true?

How are partners' investments in a partnership recorded?

Active Sports LP is organized as a limited partnership consisting of two partners: Basketball Products LP and Hockey Products LP. Each of the partners sell sporting equipment for their respective sports. Compute the partner return on equity for each limited partnership and for the total limited partnership for the year ended September 30, 2013, using the following data:

Shelby and Mortonson formed a partnership with capital contributions of $300,000 and $400,000, respectively. Their partnership agreement calls for Shelby to receive a $60,000 per year salary. Also, each partner is to receive an interest allowance equal to 10% of a partner's beginning capital investments. The remaining income or loss is to be divided equally. If the net income for the current year is $125,000, then Shelby and Mortonson's respective shares are:

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

Chad Forrester is a limited partner in a sports management firm. During the previous year his return on partnership equity was 16%. The beginning balance in his capital account was $450,000 and his partnership net income for this year was $75,000. What was the balance in Chad's capital account at the end of last year?

Assets invested by a partner into a partnership remain the property of the individual partner.

Assume that the S & B partnership agreement gave Steely 60% and Breck 40% of partnership income and losses. The partnership recorded a loss of $27,000 in the current period. Steely's share of the loss equals $16,200 and Breck's share equals $10,800.

In closing the accounts at the end of a period, the partners' capital accounts are credited for their share of the partnership loss or debited for their share of the partnership net income.