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Exam 12: Accounting for Partnerships and Limited Liability Companies

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Question 51

Multiple Choice

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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

E) A) and B)
F) B) and C)

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Question 52

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

A) True
B) False

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Question 53

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Partnership income and losses are usually divided on the basis of interest,salaries,and stated ratios because

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

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

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.

Seth and Beth 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 to be divided equally.How much of the net income of $42,000 is allocated to Seth?

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

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 result of the partnership liquidation?

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

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.

Jordon and Heidi share income equally.For the current year,the partnership net income is $40,000.Jordon made withdrawals of $14,000,and Heidi made withdrawals of $15,000.At the beginning of the year,the capital account balances were: Jordon,Capital,$40,000; Heidi,Capital,$58,000.Jordon's apital account balance at the end of the year is

Which of the following is not a characteristic of a limited liability company?

Hannah Johnson contributed equipment,inventory,and $53,000 cash to a partnership.The equipment had a book value of $25,000 and a market value of $28,000.The inventory had 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 Hannah that was originally used to purchase the equipment.​What amount should be recorded to Hannah's capital account?

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

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

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

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.

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.

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?