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Exam 12: Accounting for Partnerships and Limited Liability Companies

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Question 61

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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

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

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Question 62

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Seth and Rachel 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 divided equally. How much of the net loss of $16,000 is allocated to Seth?

A) $8,000
B) $6,000
C) $4,000
D) $16,000

E) All of the above
F) None of the above

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Question 63

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

In admitting a new partner who purchases an interest, the capital interest of the new partner is obtained from the current partners and both the total assets and total capital are increased.

Carrie and Callie form a partnership in which Carrie contributes $85,000 in assets and agrees to devote half time to the partnership. Callie contributed $50,000 in assets and agrees to devote full time to the partnership. If no additional information is available, how will Carrie and Callie share in the division of income?

Based on this information, the statement of partners' equity would show what amount in the capital account for Harrison on December 31?

Rex and Kelsey are partners who share income in the ratio of 3:2. Their capital balances are $95,000 and $140,000, respectively, on January 1. The partnership generated net income of $40,000 for the year. What is Rex's capital balance after closing the revenue and expense accounts to the capital accounts?

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

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.

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?

Wonder purchased one-half of Darwin's interest in the Todd and Darwin 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.

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

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?

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?​

Alpha and Beta are partners who share income in the ratio of 1:2 and have capital balances of $40,000 and $70,000, respectively, 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 partnership is subject to federal income taxes.

As part of the initial investment, Ray Blake 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 $29,000 for the contributed equipment, what amount should be debited to the equipment account?

Jackson and Campbell have capital balances of $100,000 and $300,000, respectively. Jackson devotes full time and Campbell devotes one-half time to the business. Determine the division of $150,000 of net income in the ratio of time devoted to business.​

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

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.