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Exam 19: Accounting for Partnerships

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Question 51

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Patsy Garrison owns and operates a bakery called Patsy's Pastries.Her postclosing trial balance on December 31,2016,is provided below.Garrison plans to enter into a partnership with Erika Noreen,effective January 1,2017.Profits and losses will be shared equally.Garrison will transfer all assets and liabilities of her store to the partnership,after revaluation.Noreen will invest cash equal to Garrison's investment after revaluation.The agreed values are: Accounts Receivable (net),$15,000;Merchandise Inventory,$54,000;and Store Equipment,$16,000.The partnership will operate under the name Baker's Delight.Record each partner's investment on page 1 of a general journal.Omit descriptions. Prepare a balance sheet for Baker's Delight just after the investments.

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Question 52

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

A) must be transferred to the partnership at the values reflected in the financial records of the proprietorship.
B) must be converted to cash and used to pay any debts of the proprietorship,with excess cash available for investment in the new partnership.
C) cannot be invested in the new partnership.
D) may be adjusted to reflect current values before being transferred to the partnership.

E) A) and B)
F) All of the above

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Question 53

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The financial statement that shows the division of profits and losses among partners is the _______________.

The partners' salary and interest allowances are recorded in

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

A dissolution has little impact on the business activities of the partnership whereas a liquidation occurs when the business ceases to exist.

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

The amount that each partner withdraws from a partnership

If an individual invests more cash for an interest in an existing partnership than the book value of his or her interest,the old partners are said to receive a(n)___________________.

Finch and Gerhardt are partners.Finch's capital balance is $100,000 and Gerhardt's is $140,000.They agreed to share equally in profits and losses.Both partners agree to accept a third investor,Harrison as a new partner with a 25% interest in the partnership.Harrison intends to invest $90,000 in cash.The bonus that is granted to Finch and Gerhardt equals:

Catherine Vollick and Danica Hubbard are partners.To expand the expertise of their business,they have agreed to admit Kyle Simon to the partnership on January 1,2016.The capital account balances on January 1,2016,after revaluation of assets,are Vollick,$80,000,and Hubbard,$60,000.Net income or net loss is shared equally.On page 8 of a general journal,record the admission of Simon to the partnership on January 1,2016,assuming that Vollick sells one-half of her interest to Simon for $50,000 in cash.Omit the description.

Some partners,known as limited partners,may not be personally liable for the debts of the partnership.

If an individual invests more cash for an interest in an existing partnership than the book value of his or her interests,an entry is made to debit

A partnership has a(n)____________________ life because it ends with the death or withdrawal of any partner.

The financial statement prepared to summarize the changes in partner's capital accounts is the __________________________.

The general ledger of a partnership will

Which of the following statements is correct?

If the withdrawing partner receives more cash than their capital account balances,the excess is debited to the capital accounts of the remaining partners according to their income and loss ratios specified in the partnership agreement.

Bryce and Kendall are partners.The partnership agreement provides for salary allowances of $52,000 for Bryce and $44,000 for Kendall and for interest of 10 percent on each partner's invested capital at the beginning of the year.The balance of any remaining profits or losses is to be divided 40 percent to Bryce and 60 percent to Kendall.On January 1,2016,the capital account balances were Bryce,$150,000,and Kendall,$190,000.Net income for the year was $144,000. 1.On page 22 of a general journal,record the following entries on December 31,2016.Omit descriptions. A)Record the salary allowances for the year. B)Record the interest allowances for the year. C)Record the division of the balance of net income. D)Close the drawing accounts into the capital accounts.Assume that the partners have withdrawn the full amount of their salaries. 2.Prepare a schedule showing the division of net income to the partners as it would appear on the income statement for 2016.

At the end of each fiscal year,cash is distributed to each partner in accordance with the profit distribution included in the partnership agreement and is reported on the partner's individual tax return.