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Exam 12: Accounting for Partnerships and Limited Liability Companies

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Question 1

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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

E) C) and D)
F) A) and D)

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Question 2

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

A) True
B) False

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Question 3

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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?

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.

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.

A partnership is a legal entity separate from its owners.

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?

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 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.

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.

A new partner may be admitted to a partnership by

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

When an additional partner is admitted to a partnership by contribution of assets to the partnership

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?

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?

The remaining cash of a partnership (after creditors have been paid) upon liquidation is divided among partners according to their

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

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?

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

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?