Test-bank-accounting-25th-editon-warren-chapter-12-accounting-for.pdf

Chapter 12--Accounting for Partnerships and Limited Liability Companies Student: ___________________________________________________________________________ 1. There are only four legal structures to form and operate a business. True False

2. In a general partnership, each partner is individually liable to creditors for debts incurred by the partnership, to the extent of the partner's capital balance. True False

3. A partnership is a legal entity separate from its owners. True False

4. A partnership is subject to federal income taxes. True False

5. A disadvantage of partnerships is the mutual agency of all partners. True False

6. A partnership requires only an agreement between two or more persons to organize. True False

7. Each partner may withdraw the assets he or she contributed to the partnership at any time. True False

8. When compared to a corporation, one of the major disadvantages of the partnership is its limited life. True False

9. When compared to a corporation, one of the major advantages of a partnerships is its relative ease of formation. True False

10. An advantage of the partnership form of business is that each partner’s potential loss is limited to that partner’s investment in the partnership. True False

11. A Limited Liability Company is a business entity form designed to overcome some of the disadvantages of the partnership form. True False

12. For tax purposes, a Limited Liability Company may elect to be treated as a partnership. True False

13. The Limited Liability Company may elect to be manager managed rather than member managed which means that only authorized members may legally bind the corporation. True False

14. Each partner has a separate capital and withdrawal account. True False

15. The chart of accounts for a partnership, with the exception of drawing and capital accounts, does not differ from the chart of accounts for a sole proprietorship. True False

16. The equity reporting for a Limited Liability Company is similar to that of a partnership but the changes in capital are shown on a statement of members' equity. True False

17. When a partner invests noncash assets in a partnership, the assets are recorded at the partner's book value. True False

18. Accounts receivable contributed to the partnership are recorded at their face value. True False

19. A new partner contributes accounts receivable to a partnership which appear in the ledger of his sole proprietorship at $20,500 and there was an allowance for doubtful accounts of $750. If $600 of the accounts receivables are completely worthless, the partnership accounts receivable should be debited for $19,900. True False

20. One reason that distributions of income and loss are prepared is to obtain the information to record a closing entry. True False

21. If nothing is stated, partnership income is divided in proportion to the individual partner's capital balance. True False

22. The salary allocation to partners used in dividing net income would also appear as salary expense on the partnership income statement. True False

23. If the articles of partnership provide for annual salary allowances of $36,000 and $18,000 to X and Y respectively and net income is $30,000, X's share of net income is $20,000. True False

24. If the net income of a partnership is less than the total of the allowances provided by the partnership agreement, the difference must be divided among the partners in the income-sharing ratio. True False

25. The amount that a partner withdraws as a monthly salary allowance does not affect the division of net income. True False

26. A devotes full time and B devotes one-half time to their partnership. If the partnership agreement is silent concerning the division of net income, A will receive a $20,000 share of a net income of $30,000. True False

27. In the distribution of income, the net income is less than the salary and interest allowances granted; the remaining balance will be a negative amount that must be divided among the partners as though it were a loss. True False

28. Details of the division of partnership income should normally be disclosed in the financial statements. True False

29. Whenever a partnership is dissolved, the assets are liquidated. True False

30. When a partnership dissolves, a new partnership is formed and a new partnership agreement should be prepared. True False

31. Many partnerships provide for the admission of new partners or withdrawals of present partners by amending existing partnership agreements, so that the firm may continue to operate without executing a new agreement. True False

32. A person may be admitted to a partnership only with the consent of all the current partners. True False

33. Partnership's asset accounts should be changed from cost to fair market value when a new partner is admitted to a firm or an existing partner withdraws and dies. True False

34. In admitting a new partner, where the company chooses to use the purchase of an interest method, the capital interest of the new partner is obtained from the current partners and both the total assets and total capital are increased. True False

35. When a new partner purchases the entire interest of an old partner, the new partner's capital account should be credited for the amount he or she paid to the old partner. True False

36. If a new partner is given a 20% interest in the firm then the new partner will receive a 20% interest in earnings. True False

37. When a new partner is admitted by making an investment in the partnership, the old partners' capital accounts are always credited. True False

38. When a new partner is admitted by making an investment of assets in the partnership and the new partner has to pay a premium for admission, a bonus is divided among the old partners' capital accounts. True False

39. Sarno has a capital balance of $42,000 after adjusting the assets to fair market value. Minton contributes $22,000 to receive a 30% interest in the new partnership. The bonus paid by Minton is $2,800. True False

40. When a partner withdraws from the partnership, the partnership dissolves. True False

41. If not enough partnership cash or other assets are available to pay the withdrawing partner, a liability may be created for the amount owed the withdrawing partner. True False

42. When a partner withdraws from the partnership by selling his or her interest back to the partnership, the remaining partners must pay the withdrawing partner a specified amount from their personal assets. True False

43. X sells to A one-half of a partnership capital interest that totals $70,000 for $40,000. A's capital account in the partnership should be credited for $40,000. True False

44. When a new partner is admitted to a partnership, all partnership assets should be revised to reflect current prices. True False

45. If a new partner is to be admitted to a partnership and a bonus is attributed to the old partnership, the bonus should be divided between the capital accounts of the original partners according to their capital balances. True False

46. When a new partner is admitted to a partnership, bonuses attributable to either the old partnership or to the incoming partner may be recognized in accordance with the agreement among the partners. True False

47. Dissolution is the term which solely means to liquidate the partnership. True False

48. In a partnership liquidation, gains and losses on the sale of partnership assets are divided among the partners' capital accounts on the basis of their capital balances. True False

49. If the share of losses on realization of the sale of noncash assets exceed the balance in a partner's capital account, the resulting balance is called a deficiency. True False

50. In a partnership liquidation, if a partner has a debit capital balance in his or her capital account, he or she is responsible for contributing personal assets sufficient to eliminate the deficit. True False

51. The process of winding up the affairs of a partnership is referred to as realization. True False

52. The distribution of cash, as the final process in winding up the affairs of a partnership, is based on the income-sharing ratio. True False

53. If a partner's capital balance is a debit after it has absorbed its share of the loss on realization, the balance is referred to as a deficiency. True False

54. In the liquidating process, any uncollected cash becomes a loss to the partnership and is divided among the remaining partners' capital balances based on their income-sharing ratio. True False

55. After all noncash assets have been converted to cash and all liabilities paid, A, B, and C have capital balances of $10,000 (debit), $5,000 (debit), and $25,000 (credit). The cash available for distribution to the partners is $10,000. True False

56. The statement of members’ equity is used for equity reporting of a partnership. True False

57. The partner capital accounts may change due to capital additions, net income, or withdrawals. True False

58. Revenue per employee may be used to measure partnership (LLC) efficiency. True False

59. Which of the following is characteristic of a general partnership? A. The partners have co-ownership of partnership property. B. The partnership is subject to federal income tax. C. The partnership has an unlimited life. D. The partners have limited liability.

60. Which of the following is not a characteristic of a general partnership? A. the partnership is created by a contract B. mutual agency C. partners share equally in net income or net losses unless an agreement states differently D. dissolution occurs only when all partners agree

61. Which of the following is an advantage of a general partnership when compared to a corporation? A. A partnership is more likely to have a positive net income. B. The partnership is relatively inexpensive to organize. C. Creditors to a partnership cannot attach personal assets of partners. D. The partnership usually hires professional managers.

62. Which of the following is a disadvantage of a partnership when compared to a corporation? A. The partnership is more likely to have a net loss. B. The partnership is easier to organize. C. The partnership is less expensive to organize. D. The partnership has limited life.

63. An advantage of the partnership form of business organization is A. unlimited liability B. mutual agency C. ease of formation D. limited life

64. The characteristic of a partnership that gives the authority to any partner to legally bind the partnership and all other partners to business contracts is called A. unlimited liability B. ease of formation C. mutual agency D. dissolution

65. When a limited partnership is formed A. the partnership activities are limited B. all partners have limited liability C. some of the partners have limited liability D. none of the partners have limited liability

66. Which of the following below is not one of the four major forms of business entities that are discussed in this chapter? A. Sole proprietorship B. Corporation C. Partnership D. Subchapter S corporation

67. Which of the following below is not a characteristic of a Limited Liability Company? A. unlimited life B. limited legal liability C. taxable D. moderate ability to raise capital

68. The operating agreement for a Limited Liability Company is sometimes called: A. articles of organization B. articles of partnership C. Schedule C D. the Uniform Partnership Act

69. When a partnership is formed, assets contributed by the partners should be recorded on the partnership books at their A. book values on the partners' books prior to their being contributed to the partnership B. fair market value at the time of the contribution C. original costs to the partner contributing them D. assessed values for property purposes

70. As part of the initial investment, a partner contributes equipment that had originally cost $125,000 and on which accumulated depreciation of $100,000 has been recorded. If similar equipment would cost $150,000 to replace and the partners agree on a valuation of $38,000 for the contributed equipment, what amount should be debited to the equipment account? A. $38,000 B. $150,000 C. $125,000 D. $100,000

71. As part of the initial investment, Omar contributes accounts receivable that had a balance of $22,500 in the accounts of a sole proprietorship. Of this amount, $2,000 is completely worthless. For the remaining accounts, the partnership will establish a provision for possible future uncollectible accounts of $1,500. The amount debited to Accounts Receivable for the new partnership is A. $19,000 B. $22,500 C. $21,000 D. $20,500

72. Radley and Smithers share income and losses in a 2:1 ratio after allowing for salaries to Radley of $48,000 and $60,000 to Smithers. Net income for the partnership is $96,000. Income should be divided as follows: A. Radley, $48,000; Smithers, $48,000 B. Radley, $56,000; Smithers, $40,000 C. Radley, $64,000; Smithers, $32,000 D. Radley, $40,000; Smithers, $56,000

73. Franco and Elisa share income equally. During the current year the partnership net income was $40,000. Franco made withdrawals of $12,000 and Elisa made withdrawals of $17,000. At the beginning of the year, the capital account balances were: Franco capital, $40,000; Elisa capital, $58,000. Franco’s capital account balance at the end of the year is A. $74,500 B. $62,500 C. $60,000 D. $48,000

74. Franco and Elisa share income equally. During the current year the partnership net income was $40,000. Franco made withdrawals of $12,000 and Elisa made withdrawals of $17,000. At the beginning of the year, the capital account balances were: Franco capital, $42,000; Elisa capital, $58,000. Elisa’s capital account balance at the end of the year is A. $81,000 B. $50,000 C. $61,000 D. $95,000

75. Partnership income and losses are usually divided on the basis of interest, salaries, and stated ratios because A. partners seldom contribute time and resources equally B. this method reflects the amount of time devoted to the partnership by the partners C. it is simpler than following the legal rules D. it prevents arguments among the partners

76. A ratio of 3:2:1 is the same as A. 30%:20%:10% B. 3/6:2/6:1/6 C. 3/10:2/10:1/20 D. None of these

77. Compton and Danson form a partnership in which Compton contributes $70,000 in assets and agrees to devote half time to the partnership. Danson contributed $50,000 in assets and agrees to devote full time to the partnership. If no additional information is available, how will Compton and Danson share in the division of income? A. 5:7 B. 1:2 C. 1:1 D. 5:2

78. Xavier and Yolonda have original investments of $50,000 and $100,000 respectively in a partnership. The articles of partnership include the following provisions regarding the division of net income: interest on original investment at 15%, salary allowances of $22,000 and $20,000 respectively, and the remainder equally. How much of the net income of $90,000 is allocated to Xavier? A. $30,250 B. $47,750 C. $45,000 D. $42,250

79. Xavier and Yolonda have original investments of $50,000 and $100,000 respectively in a partnership. The articles of partnership include the following provisions regarding the division of net income: interest on original investment at 10%, salary allowances of $27,000 and $18,000 respectively, and the remainder equally. How much of the net income of $40,000 is allocated to Xavier? A. $20,000 B. $22,000 C. $32,000 D. $0

80. Xavier and Yolonda have original investments of $50,000 and $100,000 respectively in a partnership. The articles of partnership include the following provisions regarding the division of net income: interest on original investment at 10%, salary allowances of $27,000 and $18,000 respectively, and the remainder equally. How much of the net loss of $6,000 is allocated to Xavier? A. $4,000 B. $1,000 C. $3,000 D. $6,000

81. If there is no written agreement as to the way income will be divided among partners A. they will share income and losses equally B. they will share income and losses according to their capital balances C. they will share income and losses according to the time devoted to the business. D. there really is no partnership agreement

82. Partner A has a capital balance of $40,000 and devotes full time to the partnership. Partner B has a capital balance of $50,000 and devotes half time to the partnership. If no other information is available regarding distributions, in what ratio is net income to be divided? A. 4:5 B. 1:1 C. 5:4 D. 1:2

83. Details of the division of net income for a partnership should be disclosed A. in the asset section of the balance sheet B. in the partners’ subsidiary ledger C. in the statement of cash flows D. in the partnership income statement

84. Pia and Ramona are partners who share income in the ratio of 3:2. Their capital balances are $90,000 and $130,000 respectively. Income Summary has a credit balance of $40,000. What is Pia’s capital balance after closing Income Summary to Capital? A. $70,000 B. $114,000 C. $110,000 D. $74,000

85. Pia and Ramona are partners who share income in the ratio of 3:2. Their capital balances are $90,000 and $130,000 respectively. Income Summary has a credit balance of $40,000. What is Ramona’s capital balance after closing Income Summary to Capital? A. $110,000 B. $146,000 C. $106,000 D. $150,000

86. Use the following information to answer the following questions. Izabelle and Marta are forming a partnership. Izabelle will invest a piece of equipment with a book value of $7,500 and a fair market value of $20,000. Marta will invest a building with a book value of $40,000 and a fair market value of $58,000. What amount will be recorded to the building account? A. $28,000 B. $18,000 C. $40,000 D. $58,000

87. Use the following information to answer the following questions. Izabelle and Marta are forming a partnership. Izabelle will invest a piece of equipment with a book value of $7,500 and a fair market value of $20,000. Marta will invest a building with a book value of $40,000 and a fair market value of $58,000. What amount will be recorded to Izabelle’s capital account? A. $20,000 B. $7,500 C. $27,500 D. $12,500

88. Use the following information to answer the following questions. Izabelle and Marta are forming a partnership. Izabelle will invest a piece of equipment with a book value of $7,500 and a fair market value of $20,000. Marta will invest a building with a book value of $40,000 and a fair market value of $58,000. What amount will be recorded to Marta’s capital account ? A. $18,000 B. $20,000 C. $40,000 D. $58,000

89. Robert Johnson contributed equipment, inventory, and $42,000 cash to the partnership. The equipment had a book value of $25,000 and market value of $28,000. The inventory has a book value of $50,000, but only had a market value of $15,000 due to obsolescence. The partnership also assumed a $12,000 note payable owed by Robert that was originally used to purchase the equipment. What amount should Robert’s capital account be recorded? A. $85,000 B. $73,000 C. $117,000 D. $105,000

90. Henry Jones contributed equipment, inventory, and $44,000 cash to the partnership. The equipment had a book value of $35,000 and market value of $28,000. The inventory has a book value of $25,000, but only had a market value of $12,000. due to obsolescence. The partnership also assumed a $15,000 note payable owed by Henry that was originally used to purchase the equipment. What amount should Henry’s capital account be recorded? A. $104,000 B. $89,000 C. $69,000 D. $84,000

91. Ofelia and Teresa share income and losses in a 2:1 ratio after allowing for salaries to Ofelia of $48,000 and $60,000 to Teresa. Net income for the partnership is $132,000. Income should be divided as follows: A. Ofelia, $56,000; Teresa, $76,000 B. Ofelia, $60,000; Teresa, $72,000 C. Ofelia, $72,000; Teresa, $60,000 D. Ofelia, $64,000; Teresa, $68,000

92. Carla and Eliza share income equally. During the current year the partnership net income was $40,000. Carla made withdrawals of $12,000 and Eliza made withdrawals of $17,000. At the beginning of the year, the capital account balances were: Carla capital, $42,000; Eliza capital, $55,000. Eliza’s capital account balance at the end of the year is A. $52,000 B. $58,000 C. $82,000 D. $75,000

93. Xavier and Yolanda have original investments of $50,000 and $100,000 respectively in a partnership. The articles of partnership include the following provisions regarding the division of net income: interest on original investment at 20%, salary allowances of $27,000 and $18,000 respectively, and the remainder equally. How much of the net income of $91,000 is allocated to Yolanda? A. $26,500 B. $46,000 C. $45,000 D. $45,500

94. Xavier and Yolanda have original investments of $50,000 and $100,000 respectively in a partnership. The articles of partnership include the following provisions regarding the division of net income: interest on original investment at 20%, salary allowances of $34,000 and $26,000 respectively, and the remainder equally. How much of the net income of $100,000 is allocated to Yolanda? A. $49,000 B. $51,000 C. $50,000 D. $56,000

95. Xavier and Yolanda have original investments of $50,000 and $100,000 respectively in a partnership. The articles of partnership include the following provisions regarding the division of net income: interest on original investment at 20%, salary allowances of $34,000 and $26,000 respectively, and the remainder equally. How much of the net income of $100,000 is allocated to Xavier? A. $49,000 B. $51,000 C. $50,000 D. $56,000

96. Xavier and Yolanda have original investments of $50,000 and $100,000 respectively in a partnership. The articles of partnership include the following provisions regarding the division of net income: interest on original investment at 10%, salary allowances of $38,000 and $28,000 respectively, and the remainder equally. How much of the net income of $75,000 is allocated to Yolanda? A. $66,000 B. $40,000 C. $35,000 D. $43,000

97. Xavier and Yolanda have original investments of $50,000 and $100,000 respectively in a partnership. The articles of partnership include the following provisions regarding the division of net income: interest on original investment at 10%, salary allowances of $38,000 and $28,000 respectively, and the remainder equally. How much of the net income of $75,000 is allocated to Xavier? A. $66,000 B. $40,000 C. $35,000 D. $43,000

98. Xavier and Yolanda have original investments of $50,000 and $100,000 respectively in a partnership. The articles of partnership include the following provisions regarding the division of net income: interest on original investment at 10%, salary allowances of $27,000 and $18,000 respectively, and the remainder equally. How much of the net loss of $6,000 is allocated to Yolanda? A. $1,000 B. $3,000 C. $5,000 D. $0

99. Tomas and Saturn are partners who share income in the ratio of 3:1. Their capital balances are $40,000 and $60,000 respectively. Income Summary has a credit balance of $20,000. What is Tomas’s capital balance after closing Income Summary to Capital? A. $45,000 B. $55,000 C. $65,000 D. $75,000

100. Tomas and Saturn are partners who share income in the ratio of 3:1. Their capital balances are $80,000 and $120,000 respectively. Income Summary has a credit balance of $30,000. What is Tomas’ capital balance after closing Income Summary to Capital? A. $102,500 B. $22,500 C. $57,500 D. $127,500

101. Tomas and Saturn are partners who share income in the ratio of 3:1. Their capital balances are $80,000 and $120,000 respectively. Income Summary has a credit balance of $30,000. What is Saturn’s capital balance after closing Income Summary to Capital? A. $102,500 B. $120,000 C. $112,500 D. $127,500

102. Tomas and Saturn are partners who share income in the ratio of 3:1. Their capital balances are $40,000 and $60,000 respectively. Income Summary has a credit balance of $20,000. What is Saturn’s capital balance after closing Income Summary to Capital? A. $55,000 B. $75,000 C. $45,000 D. $65,000

103. Franco and Jason share income and losses in a 2:1 ratio after allowing for salaries to Franco of $15,000 and $30,000 to Jason. If the partnership suffers a $15,000 loss, by how much would Jason’s capital account increase? A. $10,000 B. $20,000 C. $40,000 D. $25,000

104. Lambert invests $20,000 for a 1/3 interest in a partnership in which the other partners have capital totaling $34,000 before admitting Lambert. After distribution of the bonus, what is Lambert’s capital? A. $18,000 B. $20,000 C. $6,667 D. $11,333

105. Douglas pays Selena $45,000 for her 30% interest in a partnership with total net assets of $125,000. Following this transaction, Douglas’ capital account should have a credit balance of A. $37,500 B. $45,000 C. $13,500 D. more than $45,000

106. Nick is admitted to an existing partnership by investing cash. Nick agrees to pay a bonus for his ownership interest because of the past success of the partnership. When Nick’s investment in the partnership is recorded A. his capital account will be credited for more than the cash he invested B. his capital account will be credited for the amount of cash he invested C. a bonus will be credited for the amount of cash he invested D. a bonus will be distributed to the old partners' capital accounts.

107. Bobbi and Stuart are partners. The partnership capital of Bobbi is $40,000 and Stuart is $70,000. Bobbi sells his interest in the partnership to John for $50,000. The journal entry to record the admission of John as a new partner would include A. a credit to John’s capital for $40,000 B. a credit to Stuart’s capital for $10,000 C. a credit John’s capital for $50,000 D. a credit to John’s capital for $40,000 and a credit to Stuart’s capital for $10,000

108. When a partner dies, the capital account balances of the remaining partners A. will increase B. will decrease C. will remain the same D. may increase, decrease, or remain the same

109. A partner withdraws from a partnership by selling her interest to another person who currently is not associated with the firm. As a results of this transaction, the capital account balance of the other partners in the partnership A. will increase B. will decrease C. will remain the same D. may increase, decrease, or remain the same

110. Samuel and Darci are partners. The partnership capital for Samuel is $50,000 and for Darci is $60,000. Josh is admitted as a new partner by investing $50,000 cash. Josh is given a 20% interest in return for his investment. The amount of the bonus to the old partners is A. $0 B. $18,000 C. $8,000 D. $10,000

111. Abby and Bailey are partners who share income in the ratio of 2:1 and have capital balances of $60,000 and $30,000 respectively. With the consent of Bailey, Sandra buys one half of Abby's interest for $35,000. For what amount will Abby's capital account be debited to record admission of Sandra to the partnership? A. $40,000 B. $15,000 C. $35,000 D. $30,000

112. A new partner may be admitted to a partnership by A. inheriting a partnership interest B. contributing assets to the partnership C. purchasing a specific quantity of assets from the partnership D. a written approval under the federal law

113. A change in the ownership of a partnership results in the A. consolidating of the partnership B. liquidating of the partnership C. realization of the partnership D. dissolution of the partnership

114. When a new partner is admitted to a partnership, there should be a(n) A. revaluation of assets B. realization of assets C. allocation of assets D. return of assets

115. When a new partner is admitted to a partnership, there should be a(n) A. increase in the total assets of the partnership. B. new capital account added to the ledger for the new partner. C. increase in the total owner's equity of the partnership. D. debit amount to the partner’s capital account for the cash received by the current partner.

116. When an additional partner is admitted to a partnership by contribution of assets to the partnership A. the total assets of the partnership do not change B. no liabilities can be contributed at the same time C. the amount of the cash contribution is the same as the amount of the debit to the new partner's capital account D. the total of the owner's equity accounts increases

117. When a new partner is admitted to a partnership A. a bonus may be attributable to the old partner B. a bonus may only result from more cash being given by the new partner than the value of the of the assets being purchased C. a bonus agreed upon by the partners is recorded as an asset so long as the amount is within the range set by the SEC D. a bonus is not recorded

118. The Calvin-Dogwood Partnership owns inventory that was purchased for $90,000, has a current replacement cost of $85,900, and is priced to sell for $125,000. At what amount should the inventory be recorded in the accounts of the new partnership if Alexis is to be admitted? A. $129,100 B. $85,900 C. $90,000 D. $125,000

119. Immediately prior to the admission of Abbott, the Smith-Jones Partnership assets had been adjusted to current market prices, and the capital balances of Smith and Jones were $40,000 and $60,000 respectively. If the parties agree that the business is worth $120,000, what is the amount of bonus that should be recognized in the accounts at the admission of Abbott? A. $60,000 B. $80,000 C. $40,000 D. $20,000

120. Benson and Orton are partners who share income in the ratio of 2:3 and have capital balances of $60,000 and $40,000 respectively. Ramsey is admitted to the partnership and is given a 40% interest by investing $20,000. What is Benson’s capital balance after admitting Ramsey? A. $20,000 B. $24,000 C. $48,800 D. $71,200

121. Benson and Orton are partners who share income in the ratio of 2:3 and have capital balances of $60,000 and $40,000 respectively. Ramsey is admitted to the partnership and is given a 10% interest by investing $20,000. What is Orton’s capital balance after admitting Ramsey? A. $44,800 B. $35,200 C. $20,000 D. $16,000

122. Benton and Orton are partners who share income in the ratio of 1:3 and have capital balances of $70,000 and $30,000 respectively. Ramsey is admitted to the partnership and is given a 40% interest by investing $20,000. What is Benton’s capital balance after admitting Ramsey? A. $20,000 B. $7,000 C. $70,000 D. $63,000

123. Benson and Orton are partners who share income in the ratio of 1:3 and have capital balances of $70,000 and $30,000 respectively. Ramsey is admitted to the partnership and is given a 40% interest by investing $20,000. What is Orton’s capital balance after admitting Ramsey? A. $20,000 B. $9,000 C. $70,000 D. $63,000

124. Singer and McMann are partners in a business. Singer’s original capital was $40,000 and McMann’s was $60,000. They agree to salaries of $12,000 and $18,000 for Singer and McMann respectively and 10% interest on original capital. If they agree to share remaining profits and losses on a 3:2 ratio, what will Singer’s share of the income be if the income for the year was $50,000? A. $24,000 B. $22,000 C. $16,000 D. $23,400

125. Singer and McMann are partners in a business. Singer’s original capital was $40,000 and McMann’s was $60,000. They agree to salaries of $12,000 and $18,000 for Singer and McMann respectively and 10% interest on original capital. If they agree to share remaining profits and losses on a 3:2 ratio, what will McMann‘s share of the income be if the income for the year was $30,000? A. $20,000 B. $18,000 C. $18,600 D. $17,400

126. Singer and McMann are partners in a business. Singer’s original capital was $40,000 and McMann’s was $60,000. They agree to salaries of $12,000 and $18,000 for Singer and McMann respectively and 10% interest on original capital. If they agree to share remaining profits and losses on a 3:2 ratio, what will Singer’s share of the income (loss) be if the net loss for the year was $10,000? A. ($12,600) B. ($14,000) C. ($6,000) D. ($10,000)

127. Singer and McMann are partners in a business. Singer’s original capital was $40,000 and McMann’s was $60,000. They agree to salaries of $12,000 and $18,000 for Singer and McMann respectively and 10% interest on original capital. If they agree to share remaining profits and losses on a 3:2 ratio, what will Singer’s share of the income be if the income for the year was $15,000? A. $9,000 B. $2,400 C. $1,000 D. $5,600

128. Singer and McMann are partners in a business. Singer’s original capital was $40,000 and McMann’s was $60,000. They agree to salaries of $12,000 and $18,000 for Singer and McMann respectively and 10% interest on original capital. If they agree to share remaining profits and losses on a 3:2 ratio, what will McMann’s share of the income be if the income for the year was $15,000? A. $6,000 B. $9,400 C. $12,600 D. $14,000

129. Alpha and Beta are partners who share income in the ratio of 1:2 and have capital balances of $40,000 and $70,000 at the time they decide to terminate the partnership. After all noncash assets are sold and all liabilities are paid, there is a cash balance of $50,000. What amount of loss on realization should be allocated to Alpha? A. $60,000 B. $20,000 C. $30,000 D. $50,000

130. Teri, Doug, and Brian are partners with capital balances of $20,000, $30,000, and $50,000 respectively. They share income in the ratio of 3:2:1. Income Summary with a debit balance of $30,000 is closed to the capital accounts. Doug withdraws from the partnership. How much cash does he get upon withdrawal? A. $30,000 B. $20,000 C. $40,000 D. $24,000

131. A partnership liquidation occurs when A. a new partner is admitted B. a partner dies C. the ownership interest of one partner is sold to a new partner D. the assets are sold, liabilities paid, and business operations terminated

132. The balance sheet of Morgan and Rockwell was as follows immediately prior to the partnership's being liquidated: cash, $20,000; other assets, $160,000; liabilities, $40,000; Morgan capital, $60,000; Rockwell capital, $80,000. The other assets were sold for $139,000. Morgan and Rockwell share profits and losses in a 2:1 ratio. As a final cash distribution from the liquidation, Morgan will receive cash totaling A. $46,000 B. $51,000 C. $60,000 D. $49,500

133. Harriet, Mickey, and Zack decide to liquidate their partnership. All assets are sold and the liabilities are paid. Following these transactions, the capital balances and profit and loss percentages are as follows: Harriet, $27,000 and 30%; Mickey, $(12,000) and 40%; Zack, $43,000 and 30%. Mickey is unable to contribute any assets to reduce the deficit. How much cash will Harriet receive as a results of the partnership liquidation? A. $27,000 B. $21,000 C. $23,400 D. $15,000

134. The remaining cash of a partnership (after creditors have been paid) upon liquidation is divided among partners according to their A. capital balances B. contribution of assets C. drawing balances D. income sharing ratio

135. A gain or loss on realization is divided among partners according to their A. income sharing ratio B. capital balances C. drawing balances D. contribution of assets

136. Adriana and Belen are partners who share income in the ratio of 3:2 and have capital balances of $50,000 and $90,000 at the time they decide to terminate the partnership. After all noncash assets are sold and all liabilities are paid, there is a cash balance of $90,000. How much cash should be distributed to Adriana? A. $50,000 B. $20,000 C. $30,000 D. $45,000

137. Everett, Miguel, and Ramona are partners, sharing income 1:2:3. After selling all of the assets for cash, dividing losses on realization, and paying liabilities, the balances in the capital accounts are as follows: Everett, $50,000 Cr.; Miguel, $40,000 Dr.; and Ramona, $30,000 Cr. How much cash is available for distribution to the partners? A. $120,000 B. $30,000 C. $40,000 D. $90,000

138. Everett, Miguel, and Ramona are partners, sharing income 1:2:3. After selling all of the assets for cash, dividing losses on realization, and paying liabilities, the balances in the capital accounts are as follows: Everett, $50,000 Cr.; Miguel, $40,000 Dr.; and Ramona, $30,000 Cr. How much cash should be distributed to Everett assuming that Miguel pays the deficiency? A. $50,000 B. $20,000 C. $30,000 D. $40,000

139. Antonio and Barbara are partners who share income in the ratio of 1:2 and have capital balances of $40,000 and $70,000 at the time they decide to terminate the partnership. After all noncash assets are sold and all liabilities are paid, there is a cash balance of $80,000. What amount of loss on realization should be allocated to Barbara? A. $80,000 B. $10,000 C. $20,000 D. $30,000

140. Soledad and Winston are partners who share income in the ratio of 1:3 and have capital balances of $100,000 and $140,000 at the time they decide to terminate the partnership. After all noncash assets are sold and all liabilities are paid, there is a cash balance of $130,000. What amount of loss on realization should be allocated to Soledad? A. $60,000 B. $27,500 C. $92,500 D. $32,500

141. Soledad and Winston are partners who share income in the ratio of 1:3 and have capital balances of $100,000 and $140,000 at the time they decide to terminate the partnership. After all noncash assets are sold and all liabilities are paid, there is a cash balance of $130,000. What amount of loss on realization should be allocated to Winston? A. $110,000 B. $97,500 C. $42,500 D. $82,500

142. Partners Ken and Macki each have a $40,000 capital balance and share income and losses in a 3:2. Cash equals $20,000, noncash assets equal $120,000, and liabilities equal $60,000. If the noncash assets are sold for $80,000, the Macki’s capital account will A. decrease by $16,000. B. decrease by $24,000. C. increase by $24,000. D. decrease by $40,000.

143. Partners Ken and Macki each have a $40,000 capital balance and share income and losses in a 3:2. Cash equals $20,000, noncash assets equal $120,000, and liabilities equal $60,000. If the noncash assets are sold for $50,000, and each partner is personally insolvent, Partner Macki will eventually receive cash of A. $0. B. $10,000. C. $12,000. D. $20,000.

144. Partners Ken and Macki each have a $40,000 capital balance and share income and losses in a 3:2. Cash equals $20,000, noncash assets equal $120,000, and liabilities equal $60,000. If the noncash assets are sold for $60,000, and both partners agree to make up an capital deficits with personal cash contributions, Partner Macki will eventually receive cash of A. $0. B. $4,000. C. $16,000. D. $24,000.

145. The capital accounts of Harrison and Marti have balances of $160,000 and $110,000, respectively, on January 1, 2014, the beginning of the current fiscal year. On April 10, Harrison invested an additional $20,000. During the year, Harrison and Marti withdrew $96,000 and $78,000, respectively, and net income for the year was $264,000. The articles of partnership make no reference to the division of net income. Based on this information, the statement of partners’ equity for 2014 would show what amount in the capital account for Marti on December 31, 2014? A. $216,000 B. $164,000 C. $380,000 D. $52,000

146. The capital accounts of Harrison and Marti have balances of $160,000 and $110,000, respectively, on January 1, 2014, the beginning of the current fiscal year. On April 10, Harrison invested an additional $20,000. During the year, Harrison and Marti withdrew $96,000 and $78,000, respectively, and net income for the year was $264,000. The articles of partnership make no reference to the division of net income. Based on this information, the statement of partners’ equity for 2014 would show what amount in the capital account for Harrison on December 31, 2014? A. $216,000 B. $164,000 C. $380,000 D. $52,000

147. The capital accounts of Harrison and Marti have balances of $160,000 and $110,000, respectively, on January 1, 2014, the beginning of the current fiscal year. On April 10, Harrison invested an additional $20,000. During the year, Harrison and Marti withdrew $96,000 and $78,000, respectively, and net income for the year was $264,000. The articles of partnership make no reference to the division of net income. Based on this information, the statement of partners’ equity for 2010 would show what amount as total capital for the partnership on December 31, 2010? A. $228,000 B. $176,000 C. $404,000 D. $752,000

148. The capital accounts of Hawk and Martin have balances of $160,000 and $140,000, respectively, on January 1, 2010, the beginning of the current fiscal year. On April 10, Hawk invested an additional $10,000. During the year, Hawk and Martin withdrew $86,000 and $68,000, respectively, and net income for the year was $258,000. The articles of partnership make no reference to the division of net income. Based on this information, the statement of partners’ equity for 2010 would show what amount in the capital account for Martin on December 31, 2010? A. $173,000 B. $211,000 C. $201,000 D. $232,000

149. The capital accounts of Hawk and Martin have balances of $160,000 and $140,000, respectively, on January 1, 2010, the beginning of the current fiscal year. On April 10, Hawk invested an additional $10,000. During the year, Hawk and Martin withdrew $86,000 and $68,000, respectively, and net income for the year was $258,000. The articles of partnership make no reference to the division of net income. Based on this information, the statement of partners’ equity for 2010 would show what amount in the capital account for Hawk on December 31, 2010? A. $211,600 B. $213,000 C. $201,000 D. $203,000

150. The capital accounts of Hawk and Martin have balances of $160,000 and $140,000, respectively, on January 1, 2010, the beginning of the current fiscal year. On April 10, Hawk invested an additional $10,000. During the year, Hawk and Martin withdrew $86,000 and $68,000, respectively, and net income for the year was $258,000. The articles of partnership make no reference to the division of net income. Based on this information, the statement of partners’ equity for 2010 would show what amount as total capital for the partnership on December 31, 2010? A. $384,600 B. $412,600 C. $404,000 D. $414,000

151. Immediately prior to the admission of Allen, the Sanson-Jeremy Partnership assets had been adjusted to current market prices, and the capital balances of Sanson and Jeremy were $80,000 and $120,000 respectively. If the parties agree that the business is worth $240,000, what is the amount of bonus that should be recognized in the accounts at the admission of Allen? A. $60,000 B. $80,000 C. $40,000 D. $100,000

152. The Craig-Doran Partnership owns inventory that was purchased for $85,000, has a current replacement cost of $54,500, and is priced to sell for $98,000. At what amount should the inventory be recorded in the accounts of the new partnership if Alexis is to be admitted? A. $98,000 B. $54,500 C. $85,000 D. $79,167

153. Paul and Roger are partners who share income in the ratio of 3:2. Their capital balances are $90,000 and $130,000 respectively. Income Summary has a credit balance of $50,000. What is Roger’s capital balance after closing Income Summary to Capital? A. $155,000 B. $150,000 C. $110,000 D. $115,000

154. Paul and Roger are partners who share income in the ratio of 3:2. Their capital balances are $90,000 and $130,000 respectively. Income Summary has a credit balance of $50,000. What is Paul’s capital balance after closing Income Summary to Capital? A. $108,000 B. $120,000 C. $115,000 D. $180,000

155. Jackson and Campbell have capital balances of $100,000 and $300,000 respectively. Jackson devotes full time and Campbell one-half time to the business. Determine the division of $150,000 of net income when there is no reference to division in partership agreement. A. $75,000 and $75,000 B. $37,500 and $112,500 C. $100,000 and $50,000 D. $112,500 and $37,500

156. Jackson and Campbell have capital balances of $100,000 and $300,000 respectively. Jackson devotes full time and Campbell one-half time to the business. Determine the division of $150,000 of net income in ratio of capital balances. A. $75,000 and $75,000 B. $37,500 and $112,500 C. $100,000 and $50,000 D. $50,000 and $100,000

157. Jackson and Campbell have capital balances of $100,000 and $300,000 respectively. Jackson devotes full time and Campbell one-half time to the business. Determine the division of $150,000 of net income in ratio of time devoted to business. A. $75,000 and $75,000 B. $37,500 and $112,500 C. $100,000 and $50,000 D. $112,500 and $37,500

158. Aaron and Kim form a partnership by combining the assets of their separate businesses. Aaron contributes accounts receivable with a face amount of $50,000 and equipment with a cost of $180,000 and accumulated depreciation of $100,000. The partners agree that the equipment is to be priced at $68,000, that $3,500 of the accounts receivable are completely worthless and are not to be accepted by the partnership, and that $2,000 is a reasonable allowance for the uncollectibility of the remaining accounts receivable. Kim contributes cash of $21,000 and merchandise inventory of $44,500. The partners agree that the merchandise inventory is to be priced at $48,000. Journalize the entries to record in the partnership accounts (a) Aaron’s investment and (b) Kim’s investment.

159. Barton and Fallows form a partnership by combining the assets of their separate businesses. Barton contributes accounts receivable with a face amount of $50,000 and equipment with a cost of $190,000 and accumulated depreciation of $100,000. The partners agree that the equipment is to be priced at $85,000, that $3,500 of the accounts receivable are completely worthless and are not to be accepted by the partnership, and that $1,500 is a reasonable allowance for the uncollectibility of the remaining accounts receivable. Fallows contributes cash of $28,500 and merchandise inventory of $55,500. The partners agree that the merchandise inventory is to be priced at $60,000. Journalize the entries to record in the partnership accounts (a) Barton’s investment and (b) Fallows’ investment.

160. Trevor Smith contributed equipment, inventory, and $54,000 cash to a partnership. The equipment had a book value of $30,000 and a market value of $36,000. The inventory had a book value of $60,000, but only had a market value of $20,000, due to obsolescence. The partnership also assumed a $17,000 note payable owed by Smith that was used originally to purchase the equipment. Provide the journal entry for Smith’s contribution to the partnership.

161. Emerson and Dakota formed a partnership dividing income as follows: 1. Annual salary allowance to Emerson of $48,000 2. Interest of 8% on each partner’s capital balance on January 1 3. Any remaining net income divided equally. Emerson and Dakota had $25,000 and $140,000 respectively in their January 1 capital balances. Net income for the year was $220,000. How much net income should be distributed to Emerson?

162. Emerson and Dakota formed a partnership dividing income as follows: 1. Annual salary allowance to Emerson of $58,000 2. Interest of 8% on each partner’s capital balance on January 1 3. Any remaining net income divided equally. Emerson and Dakota had $25,000 and $140,000 respectively in their January 1 capital balances. New income for the year was $220,000. How much net income should be distributed to Dakota?

163. Gavin invested $45,000 in the Jason and Kelly partnership for ownership equity of $45,000. Prior to the investment land was revalued to a market value of $320,000 from a book value of $200,000. Jason and Kelly share net income in a 1:2 ratio. a. Provide the journal entry for the revaluation of land. b. Provide the journal entry to admit Gavin.

164. Malcolm has a capital balance of $90,000 after adjusting to fair market value. Celeste contributes $45,000 to receive a 25% interest in a new partnership with Malcolm. Determine the amount and recipient of the partner bonus.

165. Prior to liquidating their partnership, Craig and Jenny had capital accounts of $70,000 and $110,000, respectively. The partnership assets were sold for $285,000. The partnership had $25,000 of liabilities. Craig and Jenny share income and losses equally. Determine the amount received by Jenny as a final distribution from liquidation of the partnership.

166. The capital accounts of Hogan and Moss have balances of $90,000 and $65,000, respectively on January 1, 2011, the beginning of the current fiscal year. On April 10, Hogan invested an additional $8,000. During the year, Hogan and Moss withdrew $40,000 and $32,000, respectively, and net income for the year was $98,000. The articles of partnership make no reference to the division of net income. Required:

(1)

(2)

Journalize the entries to: a.

Close the income summary account.

b.

Close the drawing accounts.

Prepare a statement of partners’ equity for 2011 for the partnershi p of Hogan and Moss.

167. Hamir, Darci, and Pete are partners sharing income 3:2:1, respectively. After the firm’s loss from liquidation is distributed, the capital account balances were: Hamir, $45,000 Dr.; Darci, $90,000 Cr., and Pete, $64,000 Cr. If Hamir is personally bankrupt and unable to pay any of the $45,000, what will be the amount of cash received by Darci and Pete upon liquidation? Show your work.

168. S. Stephens and J. Perez are partners in Space Designs. Stephens and Perez share income equally. D. Fredricks will be admitted to the partnership. Prior to the admission, equipment was revalued downward by $8,000. The capital balances of each partner are $100,000 and $139,000, respectively, prior to the revaluation. Required:

(1)

Provide the journal entry for the asset revaluati on.

(2)

Provide the journal entry for Fredrick s’ admi ssion under the followin g indepen dent situation s: a.

Fredricks purchased a 20% interest for $50,000.

b.

Fredricks purchased a 30% interest for $125,000.

169. After the tangible assets have been adjusted to current market prices, the capital accounts of Harper and Kahlil have balances of $60,000 and $90,000, respectively. Fay is to be admitted to the partnership, contributing $45,000 cash, for which she is to receive an ownership equity of $60,000. All partners share equally in income. Required: (1) Journalize the entry to record the admission of Fay, who is to receive a bonus of $15,000. (2) What are the capital balances of each partner after the admission of the new partner?

170. The partnership of Abraham Associates began operations on January 1, 2010, with contributions from two partners as follows:

Waverley Marquez

$35,000 40,000

The following additional partner transactions took place during the year: (1)

In early January, Houston is admitted to the partnership by contributing $25,000 cash for a 25% interest.

(2)

Net income of $160,000 was earned in 2010. In addition, Waverley received a salary allowance of $30,000 for the year. The three partners agree to an income-sharing ratio equal to their capital balances after admitting Houston.

(3)

The partners’ withdrawals are equal to half of their respective distributions of income after salary (i.e., half their respective portions of the $130,000).

Required: Prepare a statement of partnership equity for the year ended December 31, 2010.

171. The capital accounts of Hope and Indiana have balances of $115,000 and $95,000, respectively. Clint and Casey are to be admitted to the partnership. Clint buys one-fifth of Hope’s interest for $30,000 and one-fourth of Indiana’s interest for $20,000. Casey contributes $45,000 cash to the partnership, for which he is to receive an ownership equity of $45,000. Required: (1) Journalize the entries to record the admission of (a) Clint and (b) Casey. (2) What are the capital balances of each partner after the admission of the new partners?

172. Holly and Luke formed a partnership, investing $240,000 and $80,000, respectively. Determine their participation in the year’s net income of $200,000 under each of the following independent assumptions:

(a) (b) (c) (d) (e)

No agreement concerning division of net income; Divided in the ratio of original capital investment; Interest at the rate of 15% allowed on original investments and the remainder divided in the ratio of 2:3; Salary allowances of $50,000 and $70,000, respectively, and the balance divided equally; Allowance of interest at the rate of 15% on original investments, salary allowances of $50,000 and $70,000, respectively, and the remainder divided equally.

173. Holly and Luke formed a partnership, investing $240,000 and $80,000, respectively. Determine their participation in the year’s net income of $380,000 under each of the following independent assumptions:

(a) (b) (c) (d) (e)

No agreement concerning division of net income; Divided in the ratio of original capital investment; Interest at the rate of 15% allowed on original investments and the remainder divided in the ratio of 2:3; Salary allowances of $50,000 and $70,000, respectively, and the balance divided equally; Allowance of interest at the rate of 15% on original investments, salary allowances of $50,000 and $70,000, respectively, and the remainder divided equally.

174. Benson contributed land, inventory, and $22,000 cash to a partnership. The land had a book value of $65,000 and a market value of $111,000. The inventory had a book value of $60,000 and a market value of $58,000. The partnership also assumed a $52,000 note payable owned by Benson that was used originally to purchase the land. Required: Provide the journal entry for Benson’s contribution to the partnership.

175. Prior to liquidating their partnership, Porter and Robert had capital accounts of $160,000 and $100,000 respectively. Prior to liquidation, the partnership had no cash assets other than what was realized from the sale of the partnership assets. These partnership assets were sold for $250,000. The partnership had $10,000 of liabilities. Porter and Robert share income and losses equally. Required: Determine the amount received by Porter as a final distribution from liquidation of the partnership.

176. Prior to liquidating their partnership, Samuel and Brian had capital accounts of $60,000 and $240,000, respectively. The partnership assets were sold for $120,000. The partnership had no liabilities. Samuel and Brian share income and losses equally. Required: a. Determine the amount of Samuel’s deficiency. b. Determine the amount distributed to Brian, assuming Samuel is unable to satisfy the deficiency.

177. Easy Sailing, LLC provides repair services for commercially-owned boats and yachts. The firm has 5 members in the LLC, which did not change between 2011 and 2012. During 2012, the business expanded into three new regions of the country. The following revenue and employee information is provided:

Revenues (in thousands) Number of employees

2011 $50,625 125

2012 $57,750 175

Required: a. For 2011 and 2012, determine the revenue per employee (excluding members). b. Interpret the trend between the two years.

178. Gleason invested $90,000 in the James and Kirk partnership for ownership equity of $90,000. Prior to the investment land was revalued to a market value of $425,000 from a book value of $200,000. James and Kirk share net income in a 1:2 ratio. a. Provide the journal entry for the revaluation of land. b. Provide the journal entry to admit Gleason.

179. Top Notch, LLC provides repair services for oil rigs. The firm has 5 members in the LLC, which did not change between 2011 and 2012. During 2012, the business expanded into three new regions of the country. The following revenue and employee information is provided:

Revenues (in thousands) Number of employees

2011 $60,525 120

2012 $58,500 160

Required: a. For 2011 and 2012, determine the revenue per employee (excluding members). b. Interpret the trend between the two years.

180. Match each statement to the item listed below.

1. Simple to form. 2. Place where changes in partner capital accounts for a period of time are reported. 3. A step during liquidation when partnership assets are sold. 4. Where the share of loss on realization is greater than the balance in partner capital. 5. Each partner may act on behalf of the entire partnership so that the liabilities created by one partner become the liabilities of all partners. 6. An association of two or more persons to own and manage a business for profit. 7. Used to divide the excess of allowances over loss when net losses occur. 8. The winding up process of a partnership.

statement of partnership equity ____ deficiency ____ mutual agency ____ partnership ____

proprietorship ____ realization ____ income sharing ratio ____ liquidation ____

181. Match the term with the appropriate definition. 1. Without an agreement, the law will stipulate this method of sharing profits and losses 2. When a partnership cannot pay its debts with business assets, the partners must use personal assets to meet the debt 3. Agreement that is the contract between partners 4. Causes the dissolution of a partnership 5. The final step in the liquidation of a partnership 6. Every partner can bind the business to a contract within the scope of the partnership’s regular business operations 7. A voluntary association of two or more persons who co-own a business for profit 8. The process of going out of business by selling the entity’s assets and paying its liabilities

unlimited liability ____

articles of partnership ____ partnership ____ mutual agency ____ liquidation ____

equally ____ distribution of remaining cash to partners ____ death of a partner ____

182. Gentry, sole proprietor of a hardware business, decides to form a partnership with Noel. Gentry’s accounts are as follows:

Book Value Cash Accounts Receivable (net) Inventory Land Building (net) Accounts Payable Mortgage Payable

Market Value

$ 25,000 52,000 112,000 40,000 300,000 25,000 145,000

$ 25,000 45,000 125,000 100,000 340,000 25,000 145,000

Noel agrees to contribute $80,000 for a 20% interest. Journalize the entries to record (a) Gentry’s investment and (b) Noel’s investment.

183. Jeff Layton, sole proprietor of a hardware business, decides to form a partnership with Nicholas Fell. Jeff’s accounts are as follows:

Book Value Cash Accounts Receivable (net) Inventory Land Building (net) Accounts Payable Mortgage Payable

$ 30,000 55,000 112,000 40,000 500,000 25,000 125,000

Market Value $ 30,000 45,000 135,000 100,000 540,000 25,000 125,000

Nicholas agrees to contribute $120,000 for a 20% interest. Journalize the entries to record (a) Jeff’s investment and (b) Nicholas’ investment.

184. Sharp and Townson had capital balances of $60,000 and $90,000 respectively at the beginning of the current fiscal year. The articles of partnership provide for salary allowances of $25,000 and $30,000 respectively, an allowance of interest at 12% on the capital balances at the beginning of the year, with the remaining net income divided equally. Net income for the current year was $110,000.

(a) (b)

Present the income division section of the income statement for the current year. Assuming that the net income had been $55,000 instead of $110,000, present the income division section of the income statement for the current year.

185. Sharp and Townson had capital balances of $60,000 and $120,000 respectively on January 1 of the current year. On May 8, Sharp invested an additional $10,000 in the partnership. During the year, Sharp and Townson withdrew $25,000 and $45,000 respectively. After closing all expense and revenue accounts at the end of the year, Income Summary has a credit balance of $90,000, that Sharp and Townson have agreed to split on a 2:1 basis, respectively.

(a) (b)

Journalize the entries to close the income summary account and the drawing accounts. Prepare the statement of owner's equity for the current year.

186. .Daja and Whitnee had capital balances of $140,000 and $160,000 respectively at the beginning of the current fiscal year. The articles of partnership provide for salary allowances of $25,000 and $35,000 respectively, an allowance of interest at 12% on the capital balances at the beginning of the year, with the remaining net income divided equally. Net income for the current year was $120,000.

(a) (b)

Present the income division section of the income statement for the current year. Assuming that the net income had been $50,000 instead of $120,000, present the income division section of the income statement for the current year.

187. Jackson and Campbell have capital balances of $100,000 and $300,000 respectively. Jackson devotes full time and Campbell one-half time to the business. Determine the division of $150,000 of net income under each of the following assumptions:

(a) (b) (c)

No agreement as to division of net income. In ratio of capital balances. In ratio of time devoted to business.

188. Jackson and Campbell have capital balances of $100,000 and $300,000 respectively. Jackson devotes full time and Campbell one-half time to the business. Determine the division of $120,000 of net income under each of the following assumptions:

(a) (b) (c) (d) (e)

No agreement as to division of net income. In ratio of capital balances. In ratio of time devoted to business. Interest of 10% on capital balances and remainder equally. Interest of 10% on capital balances, salaries of $40,000 to Jackson and $20,000 to Campbell, and the remainder equally.

189. Derek and Hailey, partners sharing net income in the ratio of 2:1, admit Ben to the partnership in accordance with the following agreement:

(1) (2) (3)

Merchandise inventory recorded in the partnership accounts at $62,500 is to be revalued at its current replacement price of $68,500. Ben is to invest $48,000 in cash for a 30% interest in the partnership, which has total net assets (assets minus liabilities) of $130,000 after the inventory is revalued. The income-sharing ratio of Derek, Hailey, and Ben is to be 2:1:1.

Required: (a) Journalize the entries to record the revaluation of merchandise inventory, and the admission of Ben to the partnership. (b) A few years later, the capital balances of Derek, Hailey, and Ben were $150,000, $90,000, and $55,000 respectively. At this time, Kacy is admitted to the partnership by the purchase of one-half of Derek’s interest for $80,000. Journalize the entry to record the admission of Kacy to the partnership.

190. Kala and Leah, partners in Best Designs, have capital balances of $40,000 and $60,000 respectively. Adam joins the partnership by buying one-half of Kala’s interest for $30,000. In addition, because of Adam’s outstanding sales skills, the partners agree to increase his interest to 40% if he invests another $10,000. The income-sharing ratio of Kala, Leah, and Adam is 4:3:1.

(a) (b)

Journalize the entries to record the admission of Adam to the partnership. Immediately after Adam’s admission to the partnership, Leah sells one-fourth of her interest to Denton for $35,000. Journalize the entry to record this transaction.

191. Immediately prior to the process of liquidation, partners Micco, Niccum, and Orwell have capital balances of $70,000, $20,000, and $30,000 respectively. There is a cash balance of $10,000, noncash assets total $160,000, and liabilities total $50,000. The partners share net income and losses in the ratio of 2:2:1. Journalize the entries to record the liquidation outlined below, using Assets as the account title for the noncash assets and Liabilities as the account title for all creditors' claims.

(a) (b) (c) (d) (e)

Sold the noncash assets for $80,000 in cash. Divided the loss on realization. Paid the liabilities. Received cash from the partner with the deficiency. Distributed the cash to the partners.

192. After discontinuing the ordinary business operations and closing the accounts on May 7, the ledger of the partnership of Anna, Brian, and Cole indicated the following:

Cash Noncash Assets Liabilities Anna, Capital Brian, Capital Cole, Capital

$ 7,500 105,000

$112,500

$ 27,500 45,000 15,000 25,000 $112,500

The partners share net income and losses in the ratio of 3:2:1. Between May 7-30, the noncash assets were sold for $150,000, the liabilities were paid, and the remaining cash was distributed to the partners. (a) (b)

Prepare a statement of partnership liquidation. Assume the same facts as in (a), except that the noncash assets were sold for $45,000 and any partner with a capital deficiency pays the amount of the deficiency to the partnership. Prepare a statement of partnership liquidation.

193. Barker invested $128,000 in the Granger and Monroe partnership for ownership equity of $128,000. Prior to the investment, equipment was revalued to a market value of $90,000 from a book value of $66,000. Granger and Monroe share net income in a 2:1 ratio. Required: a. Provide the journal entry for the revaluation of equipment. b. Provide the journal entry to admit Barker.

194. Watson purchased one-half of Dalton’s interest in the Patton and Dalton partnership for $45,000. Prior to the investment, land was revalued to a market value of $135,000 from a book value of $93,000. Patton and Dalton share net income equally. Dalton had a capital balance of $35,000 prior to these transactions. Required: a. Provide the journal entry for the revaluation of land. b. Provide the journal entry to admit Watson.

195. Wonder purchased one-half of Darwin’s interest in the Todd and Darwin’s partnership for $50,000. Prior to the investment, land was revalued to a market value of $175,000 from a book value of $100,000. Todd and Darwin share net income equally. Darwin had a capital balance of $40,000 prior to these transactions. Required: a. Provide the journal entry for the revaluation of land. b. Provide the journal entry to admit Wonder.

196. Describe the items which should be covered in a partnership agreement.

197. What is a partnership? List three advantages and three disadvantages of the partnership form of business organization.

Chapter 12--Accounting for Partnerships and Limited Liability Companies Key

1. There are only four legal structures to form and operate a business. FALSE

2. In a general partnership, each partner is individually liable to creditors for debts incurred by the partnership, to the extent of the partner's capital balance. FALSE

3. A partnership is a legal entity separate from its owners. FALSE

4. A partnership is subject to federal income taxes. FALSE

5. A disadvantage of partnerships is the mutual agency of all partners. TRUE

6. A partnership requires only an agreement between two or more persons to organize. TRUE

7. Each partner may withdraw the assets he or she contributed to the partnership at any time. FALSE

8. When compared to a corporation, one of the major disadvantages of the partnership is its limited life. TRUE

9. When compared to a corporation, one of the major advantages of a partnerships is its relative ease of formation. TRUE

10. An advantage of the partnership form of business is that each partner’s potential loss is limited to that partner’s investment in the partnership. FALSE

11. A Limited Liability Company is a business entity form designed to overcome some of the disadvantages of the partnership form. TRUE

12. For tax purposes, a Limited Liability Company may elect to be treated as a partnership. TRUE

13. The Limited Liability Company may elect to be manager managed rather than member managed which means that only authorized members may legally bind the corporation. TRUE

14. Each partner has a separate capital and withdrawal account. TRUE

15. The chart of accounts for a partnership, with the exception of drawing and capital accounts, does not differ from the chart of accounts for a sole proprietorship. TRUE

16. The equity reporting for a Limited Liability Company is similar to that of a partnership but the changes in capital are shown on a statement of members' equity. TRUE

17. When a partner invests noncash assets in a partnership, the assets are recorded at the partner's book value. FALSE

18. Accounts receivable contributed to the partnership are recorded at their face value. TRUE

19. A new partner contributes accounts receivable to a partnership which appear in the ledger of his sole proprietorship at $20,500 and there was an allowance for doubtful accounts of $750. If $600 of the accounts receivables are completely worthless, the partnership accounts receivable should be debited for $19,900. TRUE

20. One reason that distributions of income and loss are prepared is to obtain the information to record a closing entry. TRUE

21. If nothing is stated, partnership income is divided in proportion to the individual partner's capital balance. FALSE

22. The salary allocation to partners used in dividing net income would also appear as salary expense on the partnership income statement. FALSE

23. If the articles of partnership provide for annual salary allowances of $36,000 and $18,000 to X and Y respectively and net income is $30,000, X's share of net income is $20,000. FALSE

24. If the net income of a partnership is less than the total of the allowances provided by the partnership agreement, the difference must be divided among the partners in the income-sharing ratio. FALSE

25. The amount that a partner withdraws as a monthly salary allowance does not affect the division of net income. TRUE

26. A devotes full time and B devotes one-half time to their partnership. If the partnership agreement is silent concerning the division of net income, A will receive a $20,000 share of a net income of $30,000. FALSE

27. In the distribution of income, the net income is less than the salary and interest allowances granted; the remaining balance will be a negative amount that must be divided among the partners as though it were a loss. TRUE

28. Details of the division of partnership income should normally be disclosed in the financial statements. TRUE

29. Whenever a partnership is dissolved, the assets are liquidated. FALSE

30. When a partnership dissolves, a new partnership is formed and a new partnership agreement should be prepared. TRUE

31. Many partnerships provide for the admission of new partners or withdrawals of present partners by amending existing partnership agreements, so that the firm may continue to operate without executing a new agreement. TRUE

32. A person may be admitted to a partnership only with the consent of all the current partners. TRUE

33. Partnership's asset accounts should be changed from cost to fair market value when a new partner is admitted to a firm or an existing partner withdraws and dies. TRUE

34. In admitting a new partner, where the company chooses to use the purchase of an interest method, the capital interest of the new partner is obtained from the current partners and both the total assets and total capital are increased. FALSE

35. When a new partner purchases the entire interest of an old partner, the new partner's capital account should be credited for the amount he or she paid to the old partner. FALSE

36. If a new partner is given a 20% interest in the firm then the new partner will receive a 20% interest in earnings. FALSE

37. When a new partner is admitted by making an investment in the partnership, the old partners' capital accounts are always credited. FALSE

38. When a new partner is admitted by making an investment of assets in the partnership and the new partner has to pay a premium for admission, a bonus is divided among the old partners' capital accounts. TRUE

39. Sarno has a capital balance of $42,000 after adjusting the assets to fair market value. Minton contributes $22,000 to receive a 30% interest in the new partnership. The bonus paid by Minton is $2,800. TRUE

40. When a partner withdraws from the partnership, the partnership dissolves. TRUE

41. If not enough partnership cash or other assets are available to pay the withdrawing partner, a liability may be created for the amount owed the withdrawing partner. TRUE

42. When a partner withdraws from the partnership by selling his or her interest back to the partnership, the remaining partners must pay the withdrawing partner a specified amount from their personal assets. FALSE

43. X sells to A one-half of a partnership capital interest that totals $70,000 for $40,000. A's capital account in the partnership should be credited for $40,000. FALSE

44. When a new partner is admitted to a partnership, all partnership assets should be revised to reflect current prices. TRUE

45. If a new partner is to be admitted to a partnership and a bonus is attributed to the old partnership, the bonus should be divided between the capital accounts of the original partners according to their capital balances. FALSE

46. When a new partner is admitted to a partnership, bonuses attributable to either the old partnership or to the incoming partner may be recognized in accordance with the agreement among the partners. TRUE

47. Dissolution is the term which solely means to liquidate the partnership. FALSE

48. In a partnership liquidation, gains and losses on the sale of partnership assets are divided among the partners' capital accounts on the basis of their capital balances. FALSE

49. If the share of losses on realization of the sale of noncash assets exceed the balance in a partner's capital account, the resulting balance is called a deficiency. TRUE

50. In a partnership liquidation, if a partner has a debit capital balance in his or her capital account, he or she is responsible for contributing personal assets sufficient to eliminate the deficit. TRUE

51. The process of winding up the affairs of a partnership is referred to as realization. FALSE

52. The distribution of cash, as the final process in winding up the affairs of a partnership, is based on the income-sharing ratio. FALSE

53. If a partner's capital balance is a debit after it has absorbed its share of the loss on realization, the balance is referred to as a deficiency. TRUE

54. In the liquidating process, any uncollected cash becomes a loss to the partnership and is divided among the remaining partners' capital balances based on their income-sharing ratio. TRUE

55. After all noncash assets have been converted to cash and all liabilities paid, A, B, and C have capital balances of $10,000 (debit), $5,000 (debit), and $25,000 (credit). The cash available for distribution to the partners is $10,000. TRUE

56. The statement of members’ equity is used for equity reporting of a partnership. FALSE

57. The partner capital accounts may change due to capital additions, net income, or withdrawals. TRUE

58. Revenue per employee may be used to measure partnership (LLC) efficiency. TRUE

59. Which of the following is characteristic of a general partnership? A. The partners have co-ownership of partnership property. B. The partnership is subject to federal income tax. C. The partnership has an unlimited life. D. The partners have limited liability.

60. Which of the following is not a characteristic of a general partnership? A. the partnership is created by a contract B. mutual agency C. partners share equally in net income or net losses unless an agreement states differently D. dissolution occurs only when all partners agree

61. Which of the following is an advantage of a general partnership when compared to a corporation? A. A partnership is more likely to have a positive net income. B. The partnership is relatively inexpensive to organize. C. Creditors to a partnership cannot attach personal assets of partners. D. The partnership usually hires professional managers.

62. Which of the following is a disadvantage of a partnership when compared to a corporation? A. The partnership is more likely to have a net loss. B. The partnership is easier to organize. C. The partnership is less expensive to organize. D. The partnership has limited life.

63. An advantage of the partnership form of business organization is A. unlimited liability B. mutual agency C. ease of formation D. limited life

64. The characteristic of a partnership that gives the authority to any partner to legally bind the partnership and all other partners to business contracts is called A. unlimited liability B. ease of formation C. mutual agency D. dissolution

65. When a limited partnership is formed A. the partnership activities are limited B. all partners have limited liability C. some of the partners have limited liability D. none of the partners have limited liability

66. Which of the following below is not one of the four major forms of business entities that are discussed in this chapter? A. Sole proprietorship B. Corporation C. Partnership D. Subchapter S corporation

67. Which of the following below is not a characteristic of a Limited Liability Company? A. unlimited life B. limited legal liability C. taxable D. moderate ability to raise capital

68. The operating agreement for a Limited Liability Company is sometimes called: A. articles of organization B. articles of partnership C. Schedule C D. the Uniform Partnership Act

69. When a partnership is formed, assets contributed by the partners should be recorded on the partnership books at their A. book values on the partners' books prior to their being contributed to the partnership B. fair market value at the time of the contribution C. original costs to the partner contributing them D. assessed values for property purposes

70. As part of the initial investment, a partner contributes equipment that had originally cost $125,000 and on which accumulated depreciation of $100,000 has been recorded. If similar equipment would cost $150,000 to replace and the partners agree on a valuation of $38,000 for the contributed equipment, what amount should be debited to the equipment account? A. $38,000 B. $150,000 C. $125,000 D. $100,000

71. As part of the initial investment, Omar contributes accounts receivable that had a balance of $22,500 in the accounts of a sole proprietorship. Of this amount, $2,000 is completely worthless. For the remaining accounts, the partnership will establish a provision for possible future uncollectible accounts of $1,500. The amount debited to Accounts Receivable for the new partnership is A. $19,000 B. $22,500 C. $21,000 D. $20,500

72. Radley and Smithers share income and losses in a 2:1 ratio after allowing for salaries to Radley of $48,000 and $60,000 to Smithers. Net income for the partnership is $96,000. Income should be divided as follows: A. Radley, $48,000; Smithers, $48,000 B. Radley, $56,000; Smithers, $40,000 C. Radley, $64,000; Smithers, $32,000 D. Radley, $40,000; Smithers, $56,000

73. Franco and Elisa share income equally. During the current year the partnership net income was $40,000. Franco made withdrawals of $12,000 and Elisa made withdrawals of $17,000. At the beginning of the year, the capital account balances were: Franco capital, $40,000; Elisa capital, $58,000. Franco’s capital account balance at the end of the year is A. $74,500 B. $62,500 C. $60,000 D. $48,000

74. Franco and Elisa share income equally. During the current year the partnership net income was $40,000. Franco made withdrawals of $12,000 and Elisa made withdrawals of $17,000. At the beginning of the year, the capital account balances were: Franco capital, $42,000; Elisa capital, $58,000. Elisa’s capital account balance at the end of the year is A. $81,000 B. $50,000 C. $61,000 D. $95,000

75. Partnership income and losses are usually divided on the basis of interest, salaries, and stated ratios because A. partners seldom contribute time and resources equally B. this method reflects the amount of time devoted to the partnership by the partners C. it is simpler than following the legal rules D. it prevents arguments among the partners

76. A ratio of 3:2:1 is the same as A. 30%:20%:10% B. 3/6:2/6:1/6 C. 3/10:2/10:1/20 D. None of these

77. Compton and Danson form a partnership in which Compton contributes $70,000 in assets and agrees to devote half time to the partnership. Danson contributed $50,000 in assets and agrees to devote full time to the partnership. If no additional information is available, how will Compton and Danson share in the division of income? A. 5:7 B. 1:2 C. 1:1 D. 5:2

78. Xavier and Yolonda have original investments of $50,000 and $100,000 respectively in a partnership. The articles of partnership include the following provisions regarding the division of net income: interest on original investment at 15%, salary allowances of $22,000 and $20,000 respectively, and the remainder equally. How much of the net income of $90,000 is allocated to Xavier? A. $30,250 B. $47,750 C. $45,000 D. $42,250

79. Xavier and Yolonda have original investments of $50,000 and $100,000 respectively in a partnership. The articles of partnership include the following provisions regarding the division of net income: interest on original investment at 10%, salary allowances of $27,000 and $18,000 respectively, and the remainder equally. How much of the net income of $40,000 is allocated to Xavier? A. $20,000 B. $22,000 C. $32,000 D. $0

80. Xavier and Yolonda have original investments of $50,000 and $100,000 respectively in a partnership. The articles of partnership include the following provisions regarding the division of net income: interest on original investment at 10%, salary allowances of $27,000 and $18,000 respectively, and the remainder equally. How much of the net loss of $6,000 is allocated to Xavier? A. $4,000 B. $1,000 C. $3,000 D. $6,000

81. If there is no written agreement as to the way income will be divided among partners A. they will share income and losses equally B. they will share income and losses according to their capital balances C. they will share income and losses according to the time devoted to the business. D. there really is no partnership agreement

82. Partner A has a capital balance of $40,000 and devotes full time to the partnership. Partner B has a capital balance of $50,000 and devotes half time to the partnership. If no other information is available regarding distributions, in what ratio is net income to be divided? A. 4:5 B. 1:1 C. 5:4 D. 1:2

83. Details of the division of net income for a partnership should be disclosed A. in the asset section of the balance sheet B. in the partners’ subsidiary ledger C. in the statement of cash flows D. in the partnership income statement

84. Pia and Ramona are partners who share income in the ratio of 3:2. Their capital balances are $90,000 and $130,000 respectively. Income Summary has a credit balance of $40,000. What is Pia’s capital balance after closing Income Summary to Capital? A. $70,000 B. $114,000 C. $110,000 D. $74,000

85. Pia and Ramona are partners who share income in the ratio of 3:2. Their capital balances are $90,000 and $130,000 respectively. Income Summary has a credit balance of $40,000. What is Ramona’s capital balance after closing Income Summary to Capital? A. $110,000 B. $146,000 C. $106,000 D. $150,000

86. Use the following information to answer the following questions. Izabelle and Marta are forming a partnership. Izabelle will invest a piece of equipment with a book value of $7,500 and a fair market value of $20,000. Marta will invest a building with a book value of $40,000 and a fair market value of $58,000. What amount will be recorded to the building account? A. $28,000 B. $18,000 C. $40,000 D. $58,000

87. Use the following information to answer the following questions. Izabelle and Marta are forming a partnership. Izabelle will invest a piece of equipment with a book value of $7,500 and a fair market value of $20,000. Marta will invest a building with a book value of $40,000 and a fair market value of $58,000. What amount will be recorded to Izabelle’s capital account? A. $20,000 B. $7,500 C. $27,500 D. $12,500

88. Use the following information to answer the following questions. Izabelle and Marta are forming a partnership. Izabelle will invest a piece of equipment with a book value of $7,500 and a fair market value of $20,000. Marta will invest a building with a book value of $40,000 and a fair market value of $58,000. What amount will be recorded to Marta’s capital account ? A. $18,000 B. $20,000 C. $40,000 D. $58,000

89. Robert Johnson contributed equipment, inventory, and $42,000 cash to the partnership. The equipment had a book value of $25,000 and market value of $28,000. The inventory has a book value of $50,000, but only had a market value of $15,000 due to obsolescence. The partnership also assumed a $12,000 note payable owed by Robert that was originally used to purchase the equipment. What amount should Robert’s capital account be recorded? A. $85,000 B. $73,000 C. $117,000 D. $105,000

90. Henry Jones contributed equipment, inventory, and $44,000 cash to the partnership. The equipment had a book value of $35,000 and market value of $28,000. The inventory has a book value of $25,000, but only had a market value of $12,000. due to obsolescence. The partnership also assumed a $15,000 note payable owed by Henry that was originally used to purchase the equipment. What amount should Henry’s capital account be recorded? A. $104,000 B. $89,000 C. $69,000 D. $84,000

91. Ofelia and Teresa share income and losses in a 2:1 ratio after allowing for salaries to Ofelia of $48,000 and $60,000 to Teresa. Net income for the partnership is $132,000. Income should be divided as follows: A. Ofelia, $56,000; Teresa, $76,000 B. Ofelia, $60,000; Teresa, $72,000 C. Ofelia, $72,000; Teresa, $60,000 D. Ofelia, $64,000; Teresa, $68,000

92. Carla and Eliza share income equally. During the current year the partnership net income was $40,000. Carla made withdrawals of $12,000 and Eliza made withdrawals of $17,000. At the beginning of the year, the capital account balances were: Carla capital, $42,000; Eliza capital, $55,000. Eliza’s capital account balance at the end of the year is A. $52,000 B. $58,000 C. $82,000 D. $75,000

93. Xavier and Yolanda have original investments of $50,000 and $100,000 respectively in a partnership. The articles of partnership include the following provisions regarding the division of net income: interest on original investment at 20%, salary allowances of $27,000 and $18,000 respectively, and the remainder equally. How much of the net income of $91,000 is allocated to Yolanda? A. $26,500 B. $46,000 C. $45,000 D. $45,500

94. Xavier and Yolanda have original investments of $50,000 and $100,000 respectively in a partnership. The articles of partnership include the following provisions regarding the division of net income: interest on original investment at 20%, salary allowances of $34,000 and $26,000 respectively, and the remainder equally. How much of the net income of $100,000 is allocated to Yolanda? A. $49,000 B. $51,000 C. $50,000 D. $56,000

95. Xavier and Yolanda have original investments of $50,000 and $100,000 respectively in a partnership. The articles of partnership include the following provisions regarding the division of net income: interest on original investment at 20%, salary allowances of $34,000 and $26,000 respectively, and the remainder equally. How much of the net income of $100,000 is allocated to Xavier? A. $49,000 B. $51,000 C. $50,000 D. $56,000

96. Xavier and Yolanda have original investments of $50,000 and $100,000 respectively in a partnership. The articles of partnership include the following provisions regarding the division of net income: interest on original investment at 10%, salary allowances of $38,000 and $28,000 respectively, and the remainder equally. How much of the net income of $75,000 is allocated to Yolanda? A. $66,000 B. $40,000 C. $35,000 D. $43,000

97. Xavier and Yolanda have original investments of $50,000 and $100,000 respectively in a partnership. The articles of partnership include the following provisions regarding the division of net income: interest on original investment at 10%, salary allowances of $38,000 and $28,000 respectively, and the remainder equally. How much of the net income of $75,000 is allocated to Xavier? A. $66,000 B. $40,000 C. $35,000 D. $43,000

98. Xavier and Yolanda have original investments of $50,000 and $100,000 respectively in a partnership. The articles of partnership include the following provisions regarding the division of net income: interest on original investment at 10%, salary allowances of $27,000 and $18,000 respectively, and the remainder equally. How much of the net loss of $6,000 is allocated to Yolanda? A. $1,000 B. $3,000 C. $5,000 D. $0

99. Tomas and Saturn are partners who share income in the ratio of 3:1. Their capital balances are $40,000 and $60,000 respectively. Income Summary has a credit balance of $20,000. What is Tomas’s capital balance after closing Income Summary to Capital? A. $45,000 B. $55,000 C. $65,000 D. $75,000

100. Tomas and Saturn are partners who share income in the ratio of 3:1. Their capital balances are $80,000 and $120,000 respectively. Income Summary has a credit balance of $30,000. What is Tomas’ capital balance after closing Income Summary to Capital? A. $102,500 B. $22,500 C. $57,500 D. $127,500

101. Tomas and Saturn are partners who share income in the ratio of 3:1. Their capital balances are $80,000 and $120,000 respectively. Income Summary has a credit balance of $30,000. What is Saturn’s capital balance after closing Income Summary to Capital? A. $102,500 B. $120,000 C. $112,500 D. $127,500

102. Tomas and Saturn are partners who share income in the ratio of 3:1. Their capital balances are $40,000 and $60,000 respectively. Income Summary has a credit balance of $20,000. What is Saturn’s capital balance after closing Income Summary to Capital? A. $55,000 B. $75,000 C. $45,000 D. $65,000

103. Franco and Jason share income and losses in a 2:1 ratio after allowing for salaries to Franco of $15,000 and $30,000 to Jason. If the partnership suffers a $15,000 loss, by how much would Jason’s capital account increase? A. $10,000 B. $20,000 C. $40,000 D. $25,000

104. Lambert invests $20,000 for a 1/3 interest in a partnership in which the other partners have capital totaling $34,000 before admitting Lambert. After distribution of the bonus, what is Lambert’s capital? A. $18,000 B. $20,000 C. $6,667 D. $11,333

105. Douglas pays Selena $45,000 for her 30% interest in a partnership with total net assets of $125,000. Following this transaction, Douglas’ capital account should have a credit balance of A. $37,500 B. $45,000 C. $13,500 D. more than $45,000

106. Nick is admitted to an existing partnership by investing cash. Nick agrees to pay a bonus for his ownership interest because of the past success of the partnership. When Nick’s investment in the partnership is recorded A. his capital account will be credited for more than the cash he invested B. his capital account will be credited for the amount of cash he invested C. a bonus will be credited for the amount of cash he invested D. a bonus will be distributed to the old partners' capital accounts.

107. Bobbi and Stuart are partners. The partnership capital of Bobbi is $40,000 and Stuart is $70,000. Bobbi sells his interest in the partnership to John for $50,000. The journal entry to record the admission of John as a new partner would include A. a credit to John’s capital for $40,000 B. a credit to Stuart’s capital for $10,000 C. a credit John’s capital for $50,000 D. a credit to John’s capital for $40,000 and a credit to Stuart’s capital for $10,000

108. When a partner dies, the capital account balances of the remaining partners A. will increase B. will decrease C. will remain the same D. may increase, decrease, or remain the same

109. A partner withdraws from a partnership by selling her interest to another person who currently is not associated with the firm. As a results of this transaction, the capital account balance of the other partners in the partnership A. will increase B. will decrease C. will remain the same D. may increase, decrease, or remain the same

110. Samuel and Darci are partners. The partnership capital for Samuel is $50,000 and for Darci is $60,000. Josh is admitted as a new partner by investing $50,000 cash. Josh is given a 20% interest in return for his investment. The amount of the bonus to the old partners is A. $0 B. $18,000 C. $8,000 D. $10,000

111. Abby and Bailey are partners who share income in the ratio of 2:1 and have capital balances of $60,000 and $30,000 respectively. With the consent of Bailey, Sandra buys one half of Abby's interest for $35,000. For what amount will Abby's capital account be debited to record admission of Sandra to the partnership? A. $40,000 B. $15,000 C. $35,000 D. $30,000

112. A new partner may be admitted to a partnership by A. inheriting a partnership interest B. contributing assets to the partnership C. purchasing a specific quantity of assets from the partnership D. a written approval under the federal law

113. A change in the ownership of a partnership results in the A. consolidating of the partnership B. liquidating of the partnership C. realization of the partnership D. dissolution of the partnership

114. When a new partner is admitted to a partnership, there should be a(n) A. revaluation of assets B. realization of assets C. allocation of assets D. return of assets

115. When a new partner is admitted to a partnership, there should be a(n) A. increase in the total assets of the partnership. B. new capital account added to the ledger for the new partner. C. increase in the total owner's equity of the partnership. D. debit amount to the partner’s capital account for the cash received by the current partner.

116. When an additional partner is admitted to a partnership by contribution of assets to the partnership A. the total assets of the partnership do not change B. no liabilities can be contributed at the same time C. the amount of the cash contribution is the same as the amount of the debit to the new partner's capital account D. the total of the owner's equity accounts increases

117. When a new partner is admitted to a partnership A. a bonus may be attributable to the old partner B. a bonus may only result from more cash being given by the new partner than the value of the of the assets being purchased C. a bonus agreed upon by the partners is recorded as an asset so long as the amount is within the range set by the SEC D. a bonus is not recorded

118. The Calvin-Dogwood Partnership owns inventory that was purchased for $90,000, has a current replacement cost of $85,900, and is priced to sell for $125,000. At what amount should the inventory be recorded in the accounts of the new partnership if Alexis is to be admitted? A. $129,100 B. $85,900 C. $90,000 D. $125,000

119. Immediately prior to the admission of Abbott, the Smith-Jones Partnership assets had been adjusted to current market prices, and the capital balances of Smith and Jones were $40,000 and $60,000 respectively. If the parties agree that the business is worth $120,000, what is the amount of bonus that should be recognized in the accounts at the admission of Abbott? A. $60,000 B. $80,000 C. $40,000 D. $20,000

120. Benson and Orton are partners who share income in the ratio of 2:3 and have capital balances of $60,000 and $40,000 respectively. Ramsey is admitted to the partnership and is given a 40% interest by investing $20,000. What is Benson’s capital balance after admitting Ramsey? A. $20,000 B. $24,000 C. $48,800 D. $71,200

121. Benson and Orton are partners who share income in the ratio of 2:3 and have capital balances of $60,000 and $40,000 respectively. Ramsey is admitted to the partnership and is given a 10% interest by investing $20,000. What is Orton’s capital balance after admitting Ramsey? A. $44,800 B. $35,200 C. $20,000 D. $16,000

122. Benton and Orton are partners who share income in the ratio of 1:3 and have capital balances of $70,000 and $30,000 respectively. Ramsey is admitted to the partnership and is given a 40% interest by investing $20,000. What is Benton’s capital balance after admitting Ramsey? A. $20,000 B. $7,000 C. $70,000 D. $63,000

123. Benson and Orton are partners who share income in the ratio of 1:3 and have capital balances of $70,000 and $30,000 respectively. Ramsey is admitted to the partnership and is given a 40% interest by investing $20,000. What is Orton’s capital balance after admitting Ramsey? A. $20,000 B. $9,000 C. $70,000 D. $63,000

124. Singer and McMann are partners in a business. Singer’s original capital was $40,000 and McMann’s was $60,000. They agree to salaries of $12,000 and $18,000 for Singer and McMann respectively and 10% interest on original capital. If they agree to share remaining profits and losses on a 3:2 ratio, what will Singer’s share of the income be if the income for the year was $50,000? A. $24,000 B. $22,000 C. $16,000 D. $23,400

125. Singer and McMann are partners in a business. Singer’s original capital was $40,000 and McMann’s was $60,000. They agree to salaries of $12,000 and $18,000 for Singer and McMann respectively and 10% interest on original capital. If they agree to share remaining profits and losses on a 3:2 ratio, what will McMann‘s share of the income be if the income for the year was $30,000? A. $20,000 B. $18,000 C. $18,600 D. $17,400

126. Singer and McMann are partners in a business. Singer’s original capital was $40,000 and McMann’s was $60,000. They agree to salaries of $12,000 and $18,000 for Singer and McMann respectively and 10% interest on original capital. If they agree to share remaining profits and losses on a 3:2 ratio, what will Singer’s share of the income (loss) be if the net loss for the year was $10,000? A. ($12,600) B. ($14,000) C. ($6,000) D. ($10,000)

127. Singer and McMann are partners in a business. Singer’s original capital was $40,000 and McMann’s was $60,000. They agree to salaries of $12,000 and $18,000 for Singer and McMann respectively and 10% interest on original capital. If they agree to share remaining profits and losses on a 3:2 ratio, what will Singer’s share of the income be if the income for the year was $15,000? A. $9,000 B. $2,400 C. $1,000 D. $5,600

128. Singer and McMann are partners in a business. Singer’s original capital was $40,000 and McMann’s was $60,000. They agree to salaries of $12,000 and $18,000 for Singer and McMann respectively and 10% interest on original capital. If they agree to share remaining profits and losses on a 3:2 ratio, what will McMann’s share of the income be if the income for the year was $15,000? A. $6,000 B. $9,400 C. $12,600 D. $14,000

129. Alpha and Beta are partners who share income in the ratio of 1:2 and have capital balances of $40,000 and $70,000 at the time they decide to terminate the partnership. After all noncash assets are sold and all liabilities are paid, there is a cash balance of $50,000. What amount of loss on realization should be allocated to Alpha? A. $60,000 B. $20,000 C. $30,000 D. $50,000

130. Teri, Doug, and Brian are partners with capital balances of $20,000, $30,000, and $50,000 respectively. They share income in the ratio of 3:2:1. Income Summary with a debit balance of $30,000 is closed to the capital accounts. Doug withdraws from the partnership. How much cash does he get upon withdrawal? A. $30,000 B. $20,000 C. $40,000 D. $24,000

131. A partnership liquidation occurs when A. a new partner is admitted B. a partner dies C. the ownership interest of one partner is sold to a new partner D. the assets are sold, liabilities paid, and business operations terminated

132. The balance sheet of Morgan and Rockwell was as follows immediately prior to the partnership's being liquidated: cash, $20,000; other assets, $160,000; liabilities, $40,000; Morgan capital, $60,000; Rockwell capital, $80,000. The other assets were sold for $139,000. Morgan and Rockwell share profits and losses in a 2:1 ratio. As a final cash distribution from the liquidation, Morgan will receive cash totaling A. $46,000 B. $51,000 C. $60,000 D. $49,500

133. Harriet, Mickey, and Zack decide to liquidate their partnership. All assets are sold and the liabilities are paid. Following these transactions, the capital balances and profit and loss percentages are as follows: Harriet, $27,000 and 30%; Mickey, $(12,000) and 40%; Zack, $43,000 and 30%. Mickey is unable to contribute any assets to reduce the deficit. How much cash will Harriet receive as a results of the partnership liquidation? A. $27,000 B. $21,000 C. $23,400 D. $15,000

134. The remaining cash of a partnership (after creditors have been paid) upon liquidation is divided among partners according to their A. capital balances B. contribution of assets C. drawing balances D. income sharing ratio

135. A gain or loss on realization is divided among partners according to their A. income sharing ratio B. capital balances C. drawing balances D. contribution of assets

136. Adriana and Belen are partners who share income in the ratio of 3:2 and have capital balances of $50,000 and $90,000 at the time they decide to terminate the partnership. After all noncash assets are sold and all liabilities are paid, there is a cash balance of $90,000. How much cash should be distributed to Adriana? A. $50,000 B. $20,000 C. $30,000 D. $45,000

137. Everett, Miguel, and Ramona are partners, sharing income 1:2:3. After selling all of the assets for cash, dividing losses on realization, and paying liabilities, the balances in the capital accounts are as follows: Everett, $50,000 Cr.; Miguel, $40,000 Dr.; and Ramona, $30,000 Cr. How much cash is available for distribution to the partners? A. $120,000 B. $30,000 C. $40,000 D. $90,000

138. Everett, Miguel, and Ramona are partners, sharing income 1:2:3. After selling all of the assets for cash, dividing losses on realization, and paying liabilities, the balances in the capital accounts are as follows: Everett, $50,000 Cr.; Miguel, $40,000 Dr.; and Ramona, $30,000 Cr. How much cash should be distributed to Everett assuming that Miguel pays the deficiency? A. $50,000 B. $20,000 C. $30,000 D. $40,000

139. Antonio and Barbara are partners who share income in the ratio of 1:2 and have capital balances of $40,000 and $70,000 at the time they decide to terminate the partnership. After all noncash assets are sold and all liabilities are paid, there is a cash balance of $80,000. What amount of loss on realization should be allocated to Barbara? A. $80,000 B. $10,000 C. $20,000 D. $30,000

140. Soledad and Winston are partners who share income in the ratio of 1:3 and have capital balances of $100,000 and $140,000 at the time they decide to terminate the partnership. After all noncash assets are sold and all liabilities are paid, there is a cash balance of $130,000. What amount of loss on realization should be allocated to Soledad? A. $60,000 B. $27,500 C. $92,500 D. $32,500

141. Soledad and Winston are partners who share income in the ratio of 1:3 and have capital balances of $100,000 and $140,000 at the time they decide to terminate the partnership. After all noncash assets are sold and all liabilities are paid, there is a cash balance of $130,000. What amount of loss on realization should be allocated to Winston? A. $110,000 B. $97,500 C. $42,500 D. $82,500

142. Partners Ken and Macki each have a $40,000 capital balance and share income and losses in a 3:2. Cash equals $20,000, noncash assets equal $120,000, and liabilities equal $60,000. If the noncash assets are sold for $80,000, the Macki’s capital account will A. decrease by $16,000. B. decrease by $24,000. C. increase by $24,000. D. decrease by $40,000.

143. Partners Ken and Macki each have a $40,000 capital balance and share income and losses in a 3:2. Cash equals $20,000, noncash assets equal $120,000, and liabilities equal $60,000. If the noncash assets are sold for $50,000, and each partner is personally insolvent, Partner Macki will eventually receive cash of A. $0. B. $10,000. C. $12,000. D. $20,000.

144. Partners Ken and Macki each have a $40,000 capital balance and share income and losses in a 3:2. Cash equals $20,000, noncash assets equal $120,000, and liabilities equal $60,000. If the noncash assets are sold for $60,000, and both partners agree to make up an capital deficits with personal cash contributions, Partner Macki will eventually receive cash of A. $0. B. $4,000. C. $16,000. D. $24,000.

145. The capital accounts of Harrison and Marti have balances of $160,000 and $110,000, respectively, on January 1, 2014, the beginning of the current fiscal year. On April 10, Harrison invested an additional $20,000. During the year, Harrison and Marti withdrew $96,000 and $78,000, respectively, and net income for the year was $264,000. The articles of partnership make no reference to the division of net income. Based on this information, the statement of partners’ equity for 2014 would show what amount in the capital account for Marti on December 31, 2014? A. $216,000 B. $164,000 C. $380,000 D. $52,000

146. The capital accounts of Harrison and Marti have balances of $160,000 and $110,000, respectively, on January 1, 2014, the beginning of the current fiscal year. On April 10, Harrison invested an additional $20,000. During the year, Harrison and Marti withdrew $96,000 and $78,000, respectively, and net income for the year was $264,000. The articles of partnership make no reference to the division of net income. Based on this information, the statement of partners’ equity for 2014 would show what amount in the capital account for Harrison on December 31, 2014? A. $216,000 B. $164,000 C. $380,000 D. $52,000

147. The capital accounts of Harrison and Marti have balances of $160,000 and $110,000, respectively, on January 1, 2014, the beginning of the current fiscal year. On April 10, Harrison invested an additional $20,000. During the year, Harrison and Marti withdrew $96,000 and $78,000, respectively, and net income for the year was $264,000. The articles of partnership make no reference to the division of net income. Based on this information, the statement of partners’ equity for 2010 would show what amount as total capital for the partnership on December 31, 2010? A. $228,000 B. $176,000 C. $404,000 D. $752,000

148. The capital accounts of Hawk and Martin have balances of $160,000 and $140,000, respectively, on January 1, 2010, the beginning of the current fiscal year. On April 10, Hawk invested an additional $10,000. During the year, Hawk and Martin withdrew $86,000 and $68,000, respectively, and net income for the year was $258,000. The articles of partnership make no reference to the division of net income. Based on this information, the statement of partners’ equity for 2010 would show what amount in the capital account for Martin on December 31, 2010? A. $173,000 B. $211,000 C. $201,000 D. $232,000

149. The capital accounts of Hawk and Martin have balances of $160,000 and $140,000, respectively, on January 1, 2010, the beginning of the current fiscal year. On April 10, Hawk invested an additional $10,000. During the year, Hawk and Martin withdrew $86,000 and $68,000, respectively, and net income for the year was $258,000. The articles of partnership make no reference to the division of net income. Based on this information, the statement of partners’ equity for 2010 would show what amount in the capital account for Hawk on December 31, 2010? A. $211,600 B. $213,000 C. $201,000 D. $203,000

150. The capital accounts of Hawk and Martin have balances of $160,000 and $140,000, respectively, on January 1, 2010, the beginning of the current fiscal year. On April 10, Hawk invested an additional $10,000. During the year, Hawk and Martin withdrew $86,000 and $68,000, respectively, and net income for the year was $258,000. The articles of partnership make no reference to the division of net income. Based on this information, the statement of partners’ equity for 2010 would show what amount as total capital for the partnership on December 31, 2010? A. $384,600 B. $412,600 C. $404,000 D. $414,000

151. Immediately prior to the admission of Allen, the Sanson-Jeremy Partnership assets had been adjusted to current market prices, and the capital balances of Sanson and Jeremy were $80,000 and $120,000 respectively. If the parties agree that the business is worth $240,000, what is the amount of bonus that should be recognized in the accounts at the admission of Allen? A. $60,000 B. $80,000 C. $40,000 D. $100,000

152. The Craig-Doran Partnership owns inventory that was purchased for $85,000, has a current replacement cost of $54,500, and is priced to sell for $98,000. At what amount should the inventory be recorded in the accounts of the new partnership if Alexis is to be admitted? A. $98,000 B. $54,500 C. $85,000 D. $79,167

153. Paul and Roger are partners who share income in the ratio of 3:2. Their capital balances are $90,000 and $130,000 respectively. Income Summary has a credit balance of $50,000. What is Roger’s capital balance after closing Income Summary to Capital? A. $155,000 B. $150,000 C. $110,000 D. $115,000

154. Paul and Roger are partners who share income in the ratio of 3:2. Their capital balances are $90,000 and $130,000 respectively. Income Summary has a credit balance of $50,000. What is Paul’s capital balance after closing Income Summary to Capital? A. $108,000 B. $120,000 C. $115,000 D. $180,000

155. Jackson and Campbell have capital balances of $100,000 and $300,000 respectively. Jackson devotes full time and Campbell one-half time to the business. Determine the division of $150,000 of net income when there is no reference to division in partership agreement. A. $75,000 and $75,000 B. $37,500 and $112,500 C. $100,000 and $50,000 D. $112,500 and $37,500

156. Jackson and Campbell have capital balances of $100,000 and $300,000 respectively. Jackson devotes full time and Campbell one-half time to the business. Determine the division of $150,000 of net income in ratio of capital balances. A. $75,000 and $75,000 B. $37,500 and $112,500 C. $100,000 and $50,000 D. $50,000 and $100,000

157. Jackson and Campbell have capital balances of $100,000 and $300,000 respectively. Jackson devotes full time and Campbell one-half time to the business. Determine the division of $150,000 of net income in ratio of time devoted to business. A. $75,000 and $75,000 B. $37,500 and $112,500 C. $100,000 and $50,000 D. $112,500 and $37,500

158. Aaron and Kim form a partnership by combining the assets of their separate businesses. Aaron contributes accounts receivable with a face amount of $50,000 and equipment with a cost of $180,000 and accumulated depreciation of $100,000. The partners agree that the equipment is to be priced at $68,000, that $3,500 of the accounts receivable are completely worthless and are not to be accepted by the partnership, and that $2,000 is a reasonable allowance for the uncollectibility of the remaining accounts receivable. Kim contributes cash of $21,000 and merchandise inventory of $44,500. The partners agree that the merchandise inventory is to be priced at $48,000. Journalize the entries to record in the partnership accounts (a) Aaron’s investment and (b) Kim’s investment.

(a)

(b)

Accounts Receivable Equipment Allowance for Doubtful Accounts Aaron, Capital

46,500 68,000

Cash Merchandise Inventory Kim, Capital

21,000 48,000

2,000 112,500

69,000

159. Barton and Fallows form a partnership by combining the assets of their separate businesses. Barton contributes accounts receivable with a face amount of $50,000 and equipment with a cost of $190,000 and accumulated depreciation of $100,000. The partners agree that the equipment is to be priced at $85,000, that $3,500 of the accounts receivable are completely worthless and are not to be accepted by the partnership, and that $1,500 is a reasonable allowance for the uncollectibility of the remaining accounts receivable. Fallows contributes cash of $28,500 and merchandise inventory of $55,500. The partners agree that the merchandise inventory is to be priced at $60,000. Journalize the entries to record in the partnership accounts (a) Barton’s investment and (b) Fallows’ investment.

(a)

(b)

Accounts Receivable Equipment Allowance for Doubtful Accounts Barton, Capital

46,500 85,000

Cash Merchandise Inventory Fallows, Capital

28,500 60,000

1,500 130,000

88,500

160. Trevor Smith contributed equipment, inventory, and $54,000 cash to a partnership. The equipment had a book value of $30,000 and a market value of $36,000. The inventory had a book value of $60,000, but only had a market value of $20,000, due to obsolescence. The partnership also assumed a $17,000 note payable owed by Smith that was used originally to purchase the equipment. Provide the journal entry for Smith’s contribution to the partnership.

Cash Inventory Equipment

54,000 20,000 36,000 Notes Payable

17,0 00 93,0 00

Trevor Smith, Capital

161. Emerson and Dakota formed a partnership dividing income as follows: 1. Annual salary allowance to Emerson of $48,000 2. Interest of 8% on each partner’s capital balance on January 1 3. Any remaining net income divided equally. Emerson and Dakota had $25,000 and $140,000 respectively in their January 1 capital balances. Net income for the year was $220,000. How much net income should be distributed to Emerson?

Salary Interest (8% ´ $25,000) Remaining income Total distribution to Emerson

*($220,000 - $48,000 -$2,000 -$11,200) ´ 50% = $79,400

48,000 2,000 79,400* $129,400

162. Emerson and Dakota formed a partnership dividing income as follows: 1. Annual salary allowance to Emerson of $58,000 2. Interest of 8% on each partner’s capital balance on January 1 3. Any remaining net income divided equally. Emerson and Dakota had $25,000 and $140,000 respectively in their January 1 capital balances. New income for the year was $220,000. How much net income should be distributed to Dakota?

Salary Interest (8% ´ $140,000) Remaining income Total distribution to Emerson

0 11,200 74,400* $85,600

*($220,000 - $58,000 -$2,000 -$11,200) ´ 50% = $74,400

163. Gavin invested $45,000 in the Jason and Kelly partnership for ownership equity of $45,000. Prior to the investment land was revalued to a market value of $320,000 from a book value of $200,000. Jason and Kelly share net income in a 1:2 ratio. a. Provide the journal entry for the revaluation of land. b. Provide the journal entry to admit Gavin.

a.

Land Jason, Capital Kelly, Capital

b.

Cash Gavin, Capital

120, 000 40,0 00 80,0 00

45,000 45,000

164. Malcolm has a capital balance of $90,000 after adjusting to fair market value. Celeste contributes $45,000 to receive a 25% interest in a new partnership with Malcolm. Determine the amount and recipient of the partner bonus.

Equity of Malcom Celeste’s contribution Total equity after admitting Celeste Celeste’s equity interest Celeste’s equity after admission

Celeste’s contribution Celeste’s equity after admission Bonus paid to Malcolm

$90,000 45,000 $135,000 ´25% $33,750

$45,000 33,750 $ 11,250

165. Prior to liquidating their partnership, Craig and Jenny had capital accounts of $70,000 and $110,000, respectively. The partnership assets were sold for $285,000. The partnership had $25,000 of liabilities. Craig and Jenny share income and losses equally. Determine the amount received by Jenny as a final distribution from liquidation of the partnership.

Jenny’s equity prior to liquidation Realization of asset sales Book value of assets ($180,000 + $25,000) Gain on liquidation Jenny’s share of gain (50% ´ $80,000) Jenny’s cash distribution

$110,000 $285,000 205,000 $ 80,000 40,000 $150,000

166. The capital accounts of Hogan and Moss have balances of $90,000 and $65,000, respectively on January 1, 2011, the beginning of the current fiscal year. On April 10, Hogan invested an additional $8,000. During the year, Hogan and Moss withdrew $40,000 and $32,000, respectively, and net income for the year was $98,000. The articles of partnership make no reference to the division of net income. Required:

(1)

Journalize the entries to: a.

Close the income summary account.

b.

Close the drawing accounts.

(2)

Prepare a statement of partners’ equity for 2011 for the partnershi p of Hogan and Moss.

(a)

Incom98,000 e Sum mary Hogan, Capital Moss, Capital

49,000 49,000

Hoga 40,000 n, Capit al Moss, 32,000 Capit al Hogan, Drawing Moss, Drawing

40,000 32,000

(b)

(2) Hogan and Moss Statement of Partners’ Equity For the Year Ended December 31, 2011

Capital, January 1, 2011 Additional investment during the year Net income for the year Withdrawals during the year Capital, December 31, 2011

Hogan

Moss

Total

$90,000 8,000 $98,000 49,000 $147,000 40,000 $107,000

$65,000 — $65,000 49,000 $114,000 32,000 $82,000

$ 155,000 8,000 $ 163,000 98,000 $261,000 __72,000 $189,000

167. Hamir, Darci, and Pete are partners sharing income 3:2:1, respectively. After the firm’s loss from liquidation is distributed, the capital account balances were: Hamir, $45,000 Dr.; Darci, $90,000 Cr., and Pete, $64,000 Cr. If Hamir is personally bankrupt and unable to pay any of the $45,000, what will be the amount of cash received by Darci and Pete upon liquidation? Show your work.

Capital balances after realization Distribution of partner deficiency Capital balances after deficiency distribution

1$45,000 2$45,000

´ 2/3 ´ 1/3

Hamir $(45,000) 45,000 $0

Darci $90,000 (30,000)1 $60,000

Pete $64,000 (15,000)2 $49,000

168. S. Stephens and J. Perez are partners in Space Designs. Stephens and Perez share income equally. D. Fredricks will be admitted to the partnership. Prior to the admission, equipment was revalued downward by $8,000. The capital balances of each partner are $100,000 and $139,000, respectively, prior to the revaluation. Required:

(1)

Provide the journal entry for the asset revaluati on.

(2)

Provide the journal entry for Fredrick s’ admi ssion under the followin g indepen dent situation s: a.

Fredricks purchased a 20% interest for $50,000.

b.

Fredricks purchased a 30% interest for $125,000.

(1).

S. 4,00 Stephens0 , Capital J. Perez, 4,00 Capital 0 Equi8,00 pme 0 nt

(2).

(a)

Cas 50,0 h 00 S. 3,10 Step 0 hens , Capi tal J. 3,10 Pere 0 z, Capi tal D. 56,200 Fred rick s, Capi tal

Supporting calculations for the bonus:

Equity of S. Stephens Equity of J. Perez Contribution by D. Fredricks Total equity after admitting D. Fredricks D. Fredricks’ equity interest after admission D. Fredricks’ equity after admission Contribution by D. Fredricks’ Bonus paid to D. Fredricks’ The bonus to Fredricks is debited equally between Stephens’ and Perez’s capital accounts.

$ 96,000 135,000 50,000 $ 281,000 ´ 20% $ 56,200 50,000 $ 6,200

(b)

Cas 125,0 h 00 S. 9,100 Steph ens, Capit al J. 9,100 Perez, Capit al D. 106,800 Fredri cks, Capit al

Suppor ting calcula tions for the bonus: Equi$96,0 ty of 00 S. Step hens Equi135,0 ty of 00 J. Pere z Con 125,0 tribu 00 tion by D. Fred rick s Tota $ l 356,0 equi 00 ty after adm ittin g D. Fred rick s Harr ´30 is’s % equi ty inter est after adm issio n

Harr $106, is’s 800 equi ty after adm issio n Con $125, tribu 000 tion by D. Fred rick s Harr 106,8 is’s 00 equi ty after adm issio n Bon $18,2 us 00 paid to S. Step hens and J. Pere z The bon us to Step hens and Pere z is cred ited equa lly bet wee n Step hens ’ and Pere z’s capi tal acco unts.

169. After the tangible assets have been adjusted to current market prices, the capital accounts of Harper and Kahlil have balances of $60,000 and $90,000, respectively. Fay is to be admitted to the partnership, contributing $45,000 cash, for which she is to receive an ownership equity of $60,000. All partners share equally in income. Required: (1) Journalize the entry to record the admission of Fay, who is to receive a bonus of $15,000. (2) What are the capital balances of each partner after the admission of the new partner?

(1)

(2)

Cash 45,000 Harp 7,500 er, Capit al Kahli 7,500 l, Capit al Fay, Capit al

60,000

Harp 52,500 er Kahli 82,500 l Fay 60,000

170. The partnership of Abraham Associates began operations on January 1, 2010, with contributions from two partners as follows:

Waverley Marquez

$35,000 40,000

The following additional partner transactions took place during the year: (1)

In early January, Houston is admitted to the partnership by contributing $25,000 cash for a 25% interest.

(2)

Net income of $160,000 was earned in 2010. In addition, Waverley received a salary allowance of $30,000 for the year. The three partners agree to an income-sharing ratio equal to their capital balances after admitting Houston.

(3)

The partners’ withdrawals are equal to half of their respective distributions of income after salary (i.e., half their respective portions of the $130,000).

Required: Prepare a statement of partnership equity for the year ended December 31, 2010.

ABRAHAM ASSOCIATES Statement of Partnership Equity For the Year Ended December 31, 2010

Partnership capital, January 1, 2010 Admission of Houston Salary allowance Remaining income Less: Partner withdrawals Partnership capital, December 31, 2010

Waverley, Capital

Marquez, Capital

Houston, Capital

$35,000 -30,000 45,500 (22,750) $ 87,750

$40,000 --

$25,000

52,000 (26,000) $66,000

32,500 (16,250) $41,250

Total Partnership Capital $75,000 25,000 30,000 130,000 (65,000) $195,000

Admission of Houston: Equity of initial partners prior to admission Contribution by Houston Total Houston’s equity interest after admission Houston’s equity after admission Contribution by Houston No bonus

$ 75,000 __25,000 $100,000 ´ 25% $ 25,000 __25,000 $ 0

Net income distribution: The income-sharing ratio is equal to the proportion of the capital balances after admitting Houston according to the partnership agreement: Waverley: $35,000 / $100,000 = 35% Marquez: $40,000 / 100,000 = 40% Houston: $25,000 / 100,000 = 25% These ratios can be multiplied by the $130,000 remaining income ($160,000 – $30,000 salary allowance to Waverley) to distribute the earnings to the respective partner capital accounts. Withdrawals: Half of the remaining income is distributed to the three partners. Waverley need not take the salary allowance as a withdrawal but may allow it to accumulate in the member equity account.

171. The capital accounts of Hope and Indiana have balances of $115,000 and $95,000, respectively. Clint and Casey are to be admitted to the partnership. Clint buys one-fifth of Hope’s interest for $30,000 and one-fourth of Indiana’s interest for $20,000. Casey contributes $45,000 cash to the partnership, for which he is to receive an ownership equity of $45,000. Required: (1) Journalize the entries to record the admission of (a) Clint and (b) Casey. (2) What are the capital balances of each partner after the admission of the new partners?

(1)(a)

Hope, 23, Capit 00 al 0 (20% ´ $115, 000) India 23, na, 75 Capit 0 al (25% ´ $95,0 00) Clint, 46,750 Capit al

(b)

Cash 45, 00 0 Casey 45,000 , Capit al

(2)

Hope 92, 00 0 India 71, na 25 0 Clint 46, 75 0 Casey 45, 00 0

172. Holly and Luke formed a partnership, investing $240,000 and $80,000, respectively. Determine their participation in the year’s net income of $200,000 under each of the following independent assumptions:

(a) (b) (c) (d) (e)

No agreement concerning division of net income; Divided in the ratio of original capital investment; Interest at the rate of 15% allowed on original investments and the remainder divided in the ratio of 2:3; Salary allowances of $50,000 and $70,000, respectively, and the balance divided equally; Allowance of interest at the rate of 15% on original investments, salary allowances of $50,000 and $70,000, respectively, and the remainder divided equally.

a. Net income (1:1) b. Net income (3:1) c. Interest allowance + Remaining income (2:3) = Net Income d. Salary allowance + Remaining income (1:1) = Net Income e. Interest allowance + Salary allowance + Remaining income (1:1) = Net Income

Holly $100,000 $150,000 $36,000 + $60,800 = $96,800 $50,000 + $40,000 = $90,000 $36,000 + $50,000 + $16,000 = $102,000

Luke $100,000 $50,000 $12,000 + $91,200 = $103,200

Total $200,000 $200,000 $48,000 + $152,000 = $200,000

$70,000 + $40,000 = $110,000

$120,000 + $80,000 = $200,000

$12,000 + $70,000 + $16,000 = $48,000 + $120,000 + $32,000 $98,000 = $200,000

173. Holly and Luke formed a partnership, investing $240,000 and $80,000, respectively. Determine their participation in the year’s net income of $380,000 under each of the following independent assumptions:

(a) (b) (c) (d) (e)

No agreement concerning division of net income; Divided in the ratio of original capital investment; Interest at the rate of 15% allowed on original investments and the remainder divided in the ratio of 2:3; Salary allowances of $50,000 and $70,000, respectively, and the balance divided equally; Allowance of interest at the rate of 15% on original investments, salary allowances of $50,000 and $70,000, respectively, and the remainder divided equally.

a. Net income (1:1) b. Net income (3:1) c. Interest allowance + Remaining income (2:3) = Net Income d. Salary allowance + Remaining income (1:1) = Net Income e. Interest allowance + Salary allowance + Remaining income (1:1) = Net Income

Holly $190,000 $285,000 $36,000 + $132,800 = $168,800 $50,000 + $130,000 = $180,000 $36,000 + $50,000 + $106,000 = $192,000

Luke $190,000 $95,000 $12,000 + $199,200 = $211,200

Total $380,000 $380,000 $48,000 + $332,000 = $380,000

$70,000 + $130,000 = $200,000

$120,000 + $260,000 = $380,000

$12,000 + $70,000 + $106,000 = $188,000

$48,000 + $120,000 + $212,000 = $380,000

174. Benson contributed land, inventory, and $22,000 cash to a partnership. The land had a book value of $65,000 and a market value of $111,000. The inventory had a book value of $60,000 and a market value of $58,000. The partnership also assumed a $52,000 note payable owned by Benson that was used originally to purchase the land. Required: Provide the journal entry for Benson’s contribution to the partnership.

Cash 22,000 Inven 58,000 tory Land 111,000 Notes Payable Benson, Capital

52,000 139,000

175. Prior to liquidating their partnership, Porter and Robert had capital accounts of $160,000 and $100,000 respectively. Prior to liquidation, the partnership had no cash assets other than what was realized from the sale of the partnership assets. These partnership assets were sold for $250,000. The partnership had $10,000 of liabilities. Porter and Robert share income and losses equally. Required: Determine the amount received by Porter as a final distribution from liquidation of the partnership.

Porter’s equity prior to liquidation

$ 160,000

Realization of asset sales Book value of assets ($160,000 + $100,000 + $10,000) Loss on liquidation Porter’s share of loss (50% ´ $20,000) Porter’s cash distribution

$ 250,000 270,000 $ 20,000 (10,000) $ 150,000

176. Prior to liquidating their partnership, Samuel and Brian had capital accounts of $60,000 and $240,000, respectively. The partnership assets were sold for $120,000. The partnership had no liabilities. Samuel and Brian share income and losses equally. Required: a. Determine the amount of Samuel’s deficiency. b. Determine the amount distributed to Brian, assuming Samuel is unable to satisfy the deficiency. a. Samuel’s equity prior to liquidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 60,000 Realization of asset sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 120,000 Book value of assets ($60,000 + $240,000) . . . . . . . . . . . . . . . . . 300,000 Loss on liquidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ($ 180,000) Samuel’s share of loss (50% ´ $180,000). . . . . . . . . . . . . . . . . . . . . . . . . . (90,000) Samuel’s deficiency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(30,000) b. $120,000 = $240,000 - $90,000 share of loss - $30,000 Samuel’s deficiency, also equals the amount of cash realized from sale of the partnership assets.

177. Easy Sailing, LLC provides repair services for commercially-owned boats and yachts. The firm has 5 members in the LLC, which did not change between 2011 and 2012. During 2012, the business expanded into three new regions of the country. The following revenue and employee information is provided:

Revenues (in thousands) Number of employees

2011 $50,625 125

2012 $57,750 175

Required: a. For 2011 and 2012, determine the revenue per employee (excluding members). b. Interpret the trend between the two years.

a.

Revenue per employee, 2011: $50,625,000/125 = $405,000 Revenue per employee, 2012: $57,750,000/175 = $330,000

b.

Revenues increased between the two years; however, the number of employees has increased at a faster rate. Thus, the revenue per employee declined from $405,000 in 2011 to $330,000 in 2012. This indicates that the efficiency of the firm has declined in the two years. This is likely the result of the expansion. That is, the large increase in the employment base is the likely result of the expansion into the three new regions. These new employees may need to be trained and thus are not as efficient in their jobs as the more experienced employees in the existing regions. Often, a business will suffer productivity losses in the midst of significant expansion because of the inexperience of the new employees.

178. Gleason invested $90,000 in the James and Kirk partnership for ownership equity of $90,000. Prior to the investment land was revalued to a market value of $425,000 from a book value of $200,000. James and Kirk share net income in a 1:2 ratio. a. Provide the journal entry for the revaluation of land. b. Provide the journal entry to admit Gleason.

a.

Land

225, 000

James, Capital Kirk, Capital

b.

75,0 00 150, 000

Cash Gleason, Capital

90,000 90,000

179. Top Notch, LLC provides repair services for oil rigs. The firm has 5 members in the LLC, which did not change between 2011 and 2012. During 2012, the business expanded into three new regions of the country. The following revenue and employee information is provided:

Revenues (in thousands) Number of employees

2011 $60,525 120

2012 $58,500 160

Required: a. For 2011 and 2012, determine the revenue per employee (excluding members). b. Interpret the trend between the two years.

a.

Revenue per employee, 2011: $60,525,000/120 = $504,375 Revenue per employee, 2012: $58,500,000/160 = $365,625

b.

Revenues increased between the two years; however, the number of employees has increased at a faster rate. Thus, the revenue per employee declined from $504,375 in 2011 to $365,625 in 2012. This indicates that the efficiency of the firm has declined in the two years. This is likely the result of the expansion. That is, the large increase in the employment base is the likely result of the expansion into the three new regions. These new employees may need to be trained and thus are not as efficient in their jobs as the more experienced employees in the existing regions. Often, a business will suffer productivity losses in the midst of significant expansion because of the inexperience of the new employees.

180. Match each statement to the item listed below.

1. Simple to form. 2. Place where changes in partner capital accounts for a period of time are reported. 3. A step during liquidation when partnership assets are sold. 4. Where the share of loss on realization is greater than the balance in partner capital. 5. Each partner may act on behalf of the entire partnership so that the liabilities created by one partner become the liabilities of all partners. 6. An association of two or more persons to own and manage a business for profit. 7. Used to divide the excess of allowances over loss when net losses occur. 8. The winding up process of a partnership.

statement of partnership equity 2 deficiency 4 mutual agency 5 partnership 6 proprietorship 1 realization 3 income sharing ratio 7 liquidation 8

181. Match the term with the appropriate definition. 1. Without an agreement, the law will stipulate this method of sharing profits and losses 2. When a partnership cannot pay its debts with business assets, the partners must use personal assets to meet the debt 3. Agreement that is the contract between partners 4. Causes the dissolution of a partnership 5. The final step in the liquidation of a partnership 6. Every partner can bind the business to a contract within the scope of the partnership’s regular business operations 7. A voluntary association of two or more persons who co-own a business for profit 8. The process of going out of business by selling the entity’s assets and paying its liabilities

unlimited liability 2

articles of partnership partnership mutual agency liquidation

3 7 6 8

equally 1 distribution of remaining cash to partners 5 death of a partner 4

182. Gentry, sole proprietor of a hardware business, decides to form a partnership with Noel. Gentry’s accounts are as follows:

Book Value Cash Accounts Receivable (net) Inventory Land Building (net) Accounts Payable Mortgage Payable

$ 25,000 52,000 112,000 40,000 300,000 25,000 145,000

Market Value $ 25,000 45,000 125,000 100,000 340,000 25,000 145,000

Noel agrees to contribute $80,000 for a 20% interest. Journalize the entries to record (a) Gentry’s investment and (b) Noel’s investment.

(a)

(b)

Cash Accounts Receivable Inventory Land Building Accounts Payable Mortgage Payable Gentry, Capital

25,000 45,000 125,000 100,000 340,000

Cash Gentry, Capital Noel, Capital

80,000 29,000

25,000 145,000 465,000

109,000

183. Jeff Layton, sole proprietor of a hardware business, decides to form a partnership with Nicholas Fell. Jeff’s accounts are as follows:

Book Value Cash Accounts Receivable (net) Inventory Land Building (net) Accounts Payable Mortgage Payable

Market Value

$ 30,000 55,000 112,000 40,000 500,000 25,000 125,000

$ 30,000 45,000 135,000 100,000 540,000 25,000 125,000

Nicholas agrees to contribute $120,000 for a 20% interest. Journalize the entries to record (a) Jeff’s investment and (b) Nicholas’ investment.

(a)

(b)

Cash Accounts Receivable Inventory Land Building Accounts Payable Mortgage Payable Jeff Layton, Capital

30,000 45,000 135,000 100,000 540,000

Cash Jeff Layton, Capital Nicholas Fell, Capital

120,000 44,000

25,000 125,000 700,000

164,000

184. Sharp and Townson had capital balances of $60,000 and $90,000 respectively at the beginning of the current fiscal year. The articles of partnership provide for salary allowances of $25,000 and $30,000 respectively, an allowance of interest at 12% on the capital balances at the beginning of the year, with the remaining net income divided equally. Net income for the current year was $110,000.

(a) (b)

Present the income division section of the income statement for the current year. Assuming that the net income had been $55,000 instead of $110,000, present the income division section of the income statement for the current year.

(a) Net income

Division of net income: Salary allowance Interest allowance Remaining income Net income

$110,000

Sharp

Townson

Total

$25,000 7,200 18,500 $50,700

$30,000 10,800 18,500 $59,300

$ 55,000 18,000 37,000 $110,000

(b) Net income

Division of net income: Salary allowance Interest allowance Total Excess of allowances over net income. Net income

$55,000

$25,000 7,200 $32,200 (9,000) $23,200

$30,000 10,800 $40,800 (9,000) $31,800

$55,000 18,000 $73,000 (18,000) $55,000

185. Sharp and Townson had capital balances of $60,000 and $120,000 respectively on January 1 of the current year. On May 8, Sharp invested an additional $10,000 in the partnership. During the year, Sharp and Townson withdrew $25,000 and $45,000 respectively. After closing all expense and revenue accounts at the end of the year, Income Summary has a credit balance of $90,000, that Sharp and Townson have agreed to split on a 2:1 basis, respectively.

(a) (b)

Journalize the entries to close the income summary account and the drawing accounts. Prepare the statement of owner's equity for the current year.

(a) Income Summary Sharp, Capital Townson, Capital

90,000

Sharp, Capital Townson, Capital. Sharp, Drawing Townson, Drawing

25,000 45,000

60,000 30,000

25,000 45,000

(b) Sharp and Townson Statement of Owner's Equity For Year Ended December 31 Capital, January 1 Additional investment during the year Net income for the year Withdrawals during the year Capital, December 31

Sharp $ 60,000 10,000 $ 70,000 60,000 $130,000 25,000 $105,000

Townson $120,000 ---$120,000 30,000 $150,000 45,000 $105,000

Total $180,000 10,000 $190,000 90,000 $280,000 70,000 $210,000

186. .Daja and Whitnee had capital balances of $140,000 and $160,000 respectively at the beginning of the current fiscal year. The articles of partnership provide for salary allowances of $25,000 and $35,000 respectively, an allowance of interest at 12% on the capital balances at the beginning of the year, with the remaining net income divided equally. Net income for the current year was $120,000.

(a) (b)

Present the income division section of the income statement for the current year. Assuming that the net income had been $50,000 instead of $120,000, present the income division section of the income statement for the current year.

(a) Net income

Division of net income: Salary allowance Interest allowance Remaining income Net income

(b) Net income

$120,000

Daja

Whitnee

Total

$25,000 16,800 12,000 $53,800

$35,000 19,200 12,000 $66,200

$ 60,000 36,000 24,000 $120,000

$50,000

Division of net income: $25,000 16,800 $41,800 (23,000) $18,800

Salary allowance Interest allowance Total Excess of allowances over net income. Net income

$35,000 19,200 $54,200 (23,000) $31,200

$60,000 36,000 $96,000 (46,000) $50,000

187. Jackson and Campbell have capital balances of $100,000 and $300,000 respectively. Jackson devotes full time and Campbell one-half time to the business. Determine the division of $150,000 of net income under each of the following assumptions:

(a) (b) (c)

No agreement as to division of net income. In ratio of capital balances. In ratio of time devoted to business.

(a)

Jackson $75,000

Campbell $75,000

(b)

$37,500

$112,500

(c)

$100,000

$50,000

Computations Jackson: 50% ´ $150,000 Campbell: 50% ´ $150,000 Jackson: 1/4 ´ $150,000 Campbell: 3/4 ´ $150,000 Jackson: 2/3 ´ $150,000 Campbell: 1/3 ´ $150,000

188. Jackson and Campbell have capital balances of $100,000 and $300,000 respectively. Jackson devotes full time and Campbell one-half time to the business. Determine the division of $120,000 of net income under each of the following assumptions:

(a) (b) (c) (d) (e)

No agreement as to division of net income. In ratio of capital balances. In ratio of time devoted to business. Interest of 10% on capital balances and remainder equally. Interest of 10% on capital balances, salaries of $40,000 to Jackson and $20,000 to Campbell, and the remainder equally.

(a)

Jackson $60,000

Campbell $60,000

(b)

$30,000

$90,000

(c)

$80,000

$40,000

(d)

$50,000

$70,000

(e)

$60,000

$60,000

Computations Jackson: 50% ´ $120,000 Campbell: 50% ´ $120,000 Jackson: 1/4 ´ $120,000 Campbell: 3/4 ´ $120,000 Jackson: 2/3 ´ $120,000 Campbell: 1/3 ´ $120,000 Jackson: [(10% ´ $100,000) + (1/2 ´ $80,000)] Campbell: [(10% ´ $300,000) +(1/2 ´ $80,000)] Jackson: [(10% ´ $100,000) + $40,000 + (1/2 ´ $(20,000)] Campbell: [(10% ´ $300,000) + $20,000 + (1/2 ´ $(20,000)]

189. Derek and Hailey, partners sharing net income in the ratio of 2:1, admit Ben to the partnership in accordance with the following agreement:

(1) (2) (3)

Merchandise inventory recorded in the partnership accounts at $62,500 is to be revalued at its current replacement price of $68,500. Ben is to invest $48,000 in cash for a 30% interest in the partnership, which has total net assets (assets minus liabilities) of $130,000 after the inventory is revalued. The income-sharing ratio of Derek, Hailey, and Ben is to be 2:1:1.

Required: (a) Journalize the entries to record the revaluation of merchandise inventory, and the admission of Ben to the partnership. (b) A few years later, the capital balances of Derek, Hailey, and Ben were $150,000, $90,000, and $55,000 respectively. At this time, Kacy is admitted to the partnership by the purchase of one-half of Derek’s interest for $80,000. Journalize the entry to record the admission of Kacy to the partnership.

(a)

(b)

Merchandise Inventory Derek, Capital Hailey, Capital

6,000

Cash Derek, Capital Hailey, Capital Ben, Capital

48,000

Derek, Capital Kacy, Capital

75,000

4,000 2,000

6,000 3,000 39,000

75,000

190. Kala and Leah, partners in Best Designs, have capital balances of $40,000 and $60,000 respectively. Adam joins the partnership by buying one-half of Kala’s interest for $30,000. In addition, because of Adam’s outstanding sales skills, the partners agree to increase his interest to 40% if he invests another $10,000. The income-sharing ratio of Kala, Leah, and Adam is 4:3:1.

(a) (b)

Journalize the entries to record the admission of Adam to the partnership. Immediately after Adam’s admission to the partnership, Leah sells one-fourth of her interest to Denton for $35,000. Journalize the entry to record this transaction.

(a)

Kala, Capital Adam, Capital

20,000

Cash Kala, Capital Leah, Capital Adam, Capital

10,000 8,000 6,000

Leah, Capital Denton, Capital

13,500

(b)

20,000

24,000

13,500

191. Immediately prior to the process of liquidation, partners Micco, Niccum, and Orwell have capital balances of $70,000, $20,000, and $30,000 respectively. There is a cash balance of $10,000, noncash assets total $160,000, and liabilities total $50,000. The partners share net income and losses in the ratio of 2:2:1. Journalize the entries to record the liquidation outlined below, using Assets as the account title for the noncash assets and Liabilities as the account title for all creditors' claims.

(a) (b) (c) (d) (e)

Sold the noncash assets for $80,000 in cash. Divided the loss on realization. Paid the liabilities. Received cash from the partner with the deficiency. Distributed the cash to the partners.

(a)

(b)

(c)

(d) (e)

Cash Loss on Realization Assets

80,000 80,000

Micco, Capital Niccum, Capital Orwell, Capital Loss on Realization

32,000 32,000 16,000

Liabilities Cash

50,000

Cash Niccum, Capital

12,000

Micco, Capital Orwell, Capital Cash

38,000 14,000

160,000

80,000 50,000

12,000

52,000

192. After discontinuing the ordinary business operations and closing the accounts on May 7, the ledger of the partnership of Anna, Brian, and Cole indicated the following:

Cash Noncash Assets Liabilities Anna, Capital Brian, Capital Cole, Capital

$ 7,500 105,000

$112,500

$ 27,500 45,000 15,000 25,000 $112,500

The partners share net income and losses in the ratio of 3:2:1. Between May 7-30, the noncash assets were sold for $150,000, the liabilities were paid, and the remaining cash was distributed to the partners. (a) (b)

Prepare a statement of partnership liquidation. Assume the same facts as in (a), except that the noncash assets were sold for $45,000 and any partner with a capital deficiency pays the amount of the deficiency to the partnership. Prepare a statement of partnership liquidation.

a)

Statement of Partnership Liquidation For Period May 7-30 Noncash Cash + $ 7,500

Balances before realization Sale of assets & division +150,000 of gain Balances after $157,500 realization Payment of liabilities -27,500 Balances after payment $130,000 of liabilities Distribution of cash to -130,000 partners Final balances 0

Assets = $105,000

Anna Liabilities + $27,500

-105,000

Capital Brian (3/6) + $45,000

Cole (2/6) + $15,000

(1/6) $25,000

+ 22,500

+ 15,000

+ 7,500

0

$27,500

$67,500

$30,000

$32,500

0

-27,500 0

$67,500

$30,000

$32,500

- 67,500

-30,000

-32,500

0

0

0

Capital Brian (3/6) + $45,000

Cole (2/6) + $15,000

(1/6) $25,000

-30,000

- 20,000

- 10,000

0

0

b) Anna, Brian, and Cole Statement of Partnership Liquidation For Period May 7-30 Noncash Cash + $ 7,500

Balances before realization Sale of assets & division +45,000 of loss Balances after $52,500 realization Payment of liabilities -27,500 Balances after payment $25,000 of liabilities Receipt of deficiency + 5,000 Balances $30,000 Distribution of cash to -30,000 partners Final balances 0

Assets = $105,000

Anna Liabilities + $27,500

-105,000 0

$27,500

$15,000

$5,000Dr.

$15,000

0

-27,500 0

$15,000

$5,000Dr.

$15,000

0

0

0

$15,000 - 15,000 0

0

+ 5,000 0

$15,000 - 15,000 0

0

193. Barker invested $128,000 in the Granger and Monroe partnership for ownership equity of $128,000. Prior to the investment, equipment was revalued to a market value of $90,000 from a book value of $66,000. Granger and Monroe share net income in a 2:1 ratio. Required: a. Provide the journal entry for the revaluation of equipment. b. Provide the journal entry to admit Barker.

a.

Equi pme nt

24,0 00 Gr an ger , Ca pit al M onr oe, Ca pit al

b.

Cas h

1 6, 0 0 0

8, 0 0 0

128, 000 Ba rke r, Ca pit al

1 2 8, 0 0 0

194. Watson purchased one-half of Dalton’s interest in the Patton and Dalton partnership for $45,000. Prior to the investment, land was revalued to a market value of $135,000 from a book value of $93,000. Patton and Dalton share net income equally. Dalton had a capital balance of $35,000 prior to these transactions. Required: a. Provide the journal entry for the revaluation of land. b. Provide the journal entry to admit Watson.

a.

b.

Land 42,000 Patton, Capital Dalton, Capital

21,000 21,000

Dalto 28,000 n, Capit al Watson, Capital

28,000*

*($35 ,000 + $21,0 00) ´ 50%

195. Wonder purchased one-half of Darwin’s interest in the Todd and Darwin’s partnership for $50,000. Prior to the investment, land was revalued to a market value of $175,000 from a book value of $100,000. Todd and Darwin share net income equally. Darwin had a capital balance of $40,000 prior to these transactions. Required: a. Provide the journal entry for the revaluation of land. b. Provide the journal entry to admit Wonder.

a.

b.

Land 75,000 Todd, Capital Darwin, Capital

37,500 37,500

Darw 38,750 in, Capit al Wonder, Capital

38,750*

*($40 ,000 + $37,5 00) ´ 50%

196. Describe the items which should be covered in a partnership agreement. The articles of partnership should include the following points: a. name, location, and nature of the business b. name, capital investment, and duties of each partner c. method of sharing profits and losses among the partners d. withdrawals of assets allowed to the partners e. procedures for settling disputes between the partners f. procedures for admitting new partners g. procedures for settling up with a partner who withdraws from the business h. procedures for liquidating the partnership

197. What is a partnership? List three advantages and three disadvantages of the partnership form of business organization. A partnership is a voluntary association of two or more persons who co-own a business for profit. Advantages: Unlike a corporation, a partnership is easy to form, involves no legal procedures, and is less expensive to form. A partnership brings together capital and expertise of two or more individuals. Finally, partnerships pay no income taxes as corporations do. Disadvantages: Some disadvantages of a partnership are mutual agency, which allows each partner to sign contracts in the name of the partnership, and unlimited liability, which makes each partner individually liable for all the debts of the partnership. Additionally, the limited life of a partnership requires a new agreement whenever there is a change to the existing partnership.