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Exam 12: Accounting for Partnerships and Limited Liability Companies

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Question 101

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Jeff Layton, sole proprietor of a hardware business, decides to form a partnership with Nicholas Fell. Jeff's accounts are as follows: Nicholas agrees to contribute $120,000 for a 20% interest. Journalize the entries to record (a) Jeff's investment and (b) Nicholas' investment.

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Question 102

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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.

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Question 103

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

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

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:

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.

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?

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.

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?

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?

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.

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.