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Exam 19: Accounting for Partnerships

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Question 21

Multiple Choice

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The general ledger of a partnership will

A) not contain a separate drawing account for each partner.
B) contain one capital account that reflects the total equity of all partners.
C) not contain a capital account or accounts.
D) contain a separate capital account for each partner.

E) C) and D)
F) B) and D)

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Question 22

Multiple Choice

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Which of the following is not a characteristic of a partnership?

A) Each general partner has unlimited liability for the debts of the partnership.
B) If one partner dies or leaves the partnership, the existing partnership is terminated.
C) The partnership income is subject to a federal income tax that is levied on the business but not on the partners.
D) The existing partnership agreement is dissolved and a new agreement is formed when a new partner joins the partnership.

E) C) and D)
F) None of the above

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Question 23

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The entry to close a partner's drawing account at the end of a fiscal period includes a debit to the partner's drawing account.

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.

Which of the following statements is not correct?

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

Nancy Conradt and Chris Russell are partners who share profits and losses in the ratio of 60:40, respectively. On December 31, 2013, they decide that Russell will sell one-half of his interest to Pam Ortega. At that time, the balances of the capital accounts are $500,000 for Conradt and $700,000 for Russell. The partners agree that before the new partner is admitted, certain assets should be revalued. These assets include merchandise inventory carried at $411,200 revalued at $403,600, and a building with a book value of $260,000 revalued at $450,000. On page 10 of a general journal, record the revaluation entries. Omit descriptions. Then, determine the capital balances of the two existing partners after the revaluation is made.

An association of two or more persons to carry on, as co-owners, a business for profit is called a(n) ___________________.

All of the following are included on the statement of partners' equities except

Escobar and Woods 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 $18,000. The salaries were paid to the partners during 2013 and were charged to the partners' drawing accounts. The Income Summary account has a credit balance of $60,000 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 Escobar? 2. What amount of net income or loss will be allocated to Woods?

Salary and interest allowances for partners are treated as expenses of the firm and are used in the determination of net income.

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

The amount that each partner withdraws from a partnership

A gain or loss on revaluation of assets should be allocated to the partners according to the balances of their capital accounts.

Peter Nguyen and Loren Washington are partners who share profits and losses in the ratio of 60:40, respectively. On December 31, 2013, they decide that Washington will sell one-half of her interest to Grace Dolores. At that time, the balances of the capital accounts are $75,000 for Nguyen and $45,000 for Washington. The partners agree that before the new partner is admitted, certain assets should be revalued. These assets include merchandise inventory carried at $42,000 revalued at $48,000, and a building with a book value of $100,000 revalued at $120,000. On page 10 of a general journal, record the revaluation entries. Omit descriptions. Then, determine the capital balances of the two existing partners after the revaluation is made.

Ben White and Lisa Caputi are partners, and each has a capital balance of $50,000. To gain admission to the partnership, Tim Smith pays $30,000 directly to White for one-half of his equity. After the admission of Smith, the total partners' equity in the records of the partnership will be

When the owner of a sole proprietorship accepts a partner, the assets of the proprietorship

Brian Colt and Karen Randall are partners who share profits and losses in the ratio of 70:30, respectively. On December 31, 2013, they decide that Randall will sell one-half of her interest to Jane Wu. At that time, the balances of the capital accounts are $70,000 for Colt and $30,000 for Randall. The partners agree that before the new partner is admitted, certain assets should be revalued. These assets include merchandise inventory carried at $11,000 revalued at $10,000, and a building with a book value of $60,000 revalued at $70,000. On page 10 of a general journal, record the revaluation entries. Omit descriptions. Then, determine the capital balances of the two existing partners after the revaluation is made.

Bryce and Kendall are partners. The partnership agreement provides for salary allowances of $52,000 for Bryce and $44,000 for Kendall 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 Bryce and 60 percent to Kendall. On January 1, 2013, the capital account balances were Bryce, $150,000, and Kendall, $190,000. Net income for the year was $144,000. 1. On page 22 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.

Partnership net income of $75,000 is to be divided between two partners, Bob Garcia and Jerry McKernan, according to the following arrangement: There will be salary allowances of $30,000 for Garcia and $20,000 for McKernan, with the remainder divided equally. How much of the net income will be distributed to Garcia and McKernan, respectively?