Q&A Hero

Q: The proprietorship is a less widely used form of business than the partnership. a. True b. False

Q: A limited liability company is a business entity form designed to overcome some of the disadvantages of the partnership form. a. True b. False

Q: When a new partner is admitted to a partnership, bonuses attributable to either the old partnership or to the incoming partner may be recognized in accordance with the agreement among the partners. a. True b. False

Q: Each partner may withdraw the assets he or she contributed to the partnership at any time. a. True b. False

Q: A partnership requires only an agreement between two or more persons to organize. a. True b. False

Q: 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. a. True b. False

Q: One reason that the division of income (loss) is reported at the bottom of the income statement is to provide the information for recording a closing entry. a. True b. False

Q: With a partnership, there is no limitation on legal liability. a. True b. False

Q: 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. a. True b. False

Q: When compared to a proprietorship, one of the major advantages of a partnership is its relative ease of formation. a. True b. False

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

Q: When a new partner is admitted by making an investment of assets in the partnership and the new partner has to pay a premium for admission, a bonus is divided among the old partners' capital accounts. a. True b. False

Q: A partnership is subject to federal income taxes. a. True b. False

Q: Many partnerships provide for the admission of new partners or withdrawals of present partners by amending existing partnership agreements, so that the firm may continue to operate without executing a new agreement. a. True b. False

Q: 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. a. True b. False

Q: A new partner contributes accounts receivable to a partnership, which appears 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 receivable are completely worthless, the partnership Accounts Receivable should be debited for $19,900. a. True b. False

Q: 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. a. True b. False

Q: 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. a. True b. False

Q: A disadvantage of partnerships is the mutual agency of all partners. a. True b. False

Q: When a new partner purchases the entire interest of an old partner, the new partner's capital account should be credited for the amount he or she paid to the old partner. a. True b. False

Q: One of the major disadvantages of the partnership is its limited life. a. True b. False

Q: 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. a. True b. False

Q: Details of the division of partnership income should normally be disclosed in the financial statements. a. True b. False

Q: If the share of losses on realization of the sale of noncash assets exceeds the balance in a partner's capital account, the resulting balance is called a deficiency. a. True b. False

Q: If the articles of partnership provide for annual salary allowances of $36,000 and $18,000 to Partner X and Partner Y, respectively, and net income is $30,000, Partner X's share of net income is $20,000. a. True b. False

Q: In a partnership liquidation, if a partner has a debit capital balance in his or her capital account, he or she is responsible for contributing personal assets sufficient to eliminate the deficit. a. True b. False

Q: The statement of members’ equity is used for equity reporting of a partnership. a. True b. False

Q: 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. a. True b. False

Q: 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. a. True b. False

Q: When a partner withdraws from the partnership, the partnership dissolves. a. True b. False

Q: Partner A devotes full time and Partner B devotes one-half time to their partnership. If the partnership agreement is silent concerning the division of net income, Partner A will receive a $20,000 share of a net income of $30,000. a. True b. False

Q: X sells to A one-half of a partnership capital interest that totals $70,000 for $40,000. A's capital account in the partnership should be credited for $40,000. a. True b. False

Q: The asset revaluation account is a permanent balance sheet account. a. True b. False

Q: Each partner has a separate capital and withdrawal account. a. True b. False

Q: When a new partner is admitted to a partnership, all partnership assets should be revised to reflect current values. a. True b. False

Q: In the distribution of income, the net income is less than the salary and interest allowances granted; the remaining balance will be a negative amount that must be divided among the partners as though it were a net loss. a. True b. False

Q: When a partner invests noncash assets in a partnership, the assets are recorded at the partner's book value. a. True b. False

Q: If the net income of a partnership is less than the total of the allowances provided by the partnership agreement, the difference must be divided among the partners according to the income-sharing ratio. a. True b. False

Q: When a new partner is admitted by making an investment in the partnership, the old partners' capital accounts are always credited. a. True b. False

Q: When the asset revaluation account is used to revalue assets prior to admitting a new partner, Asset Revaluation is debited with an upward revaluation of an asset. a. True b. False

Q: In the liquidating process, any uncollectible deficiency becomes a loss to the partnership and is divided among the remaining partners' capital balances based on their income-sharing ratio. a. True b. False

Q: For tax purposes, a limited liability company may elect to be treated as a partnership. a. True b. False

Q: The process of winding up the affairs of a partnership is referred to as realization. a. True b. False

Q: The partner capital accounts may change due to capital additions, net income, or withdrawals. a. True b. False

Q: An advantage of the partnership form of business is that each partner’s potential loss is limited to that partner’s investment in the partnership. a. True b. False

Q: 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. a. True b. False

Q: The amount that a partner withdraws as a monthly salary allowance does not affect the division of net income. a. True b. False

Q: A partnership's asset accounts should be changed from cost to fair market value when a new partner is admitted to a firm or an existing partner withdraws or dies. a. True b. False

Q: The salary allocation to partners used in dividing net income would also appear as salary expense on the partnership income statement. a. True b. False

Q: Brad Simmons, sole proprietor of a hardware business, decides to form a partnership with Rich Winter. Brad’s accounts are as follows: Book ValueMarket Value Cash$ 30,000 $ 30,000 Accounts Receivable (net)55,000 45,000 Inventory112,000 135,000 Land40,000 100,000 Building (net)500,000 540,000 Accounts Payable25,000 25,000 Mortgage Payable125,000 125,000 ​Rich agrees to contribute $170,000 for a 20% interest. Journalize the entries for (a) Brad’s investment and (b) Rich’s investment.

Q: Easy Sailing, LLC provides repair services for commercially owned boats and yachts. The firm has five members in the LLC, which did not change between the first year and the second year. During Year 2, the business expanded into three new regions of the country. The following revenue and employee information is provided: Year 1Year 2Revenues (in thousands)$50,625$57,750Number of employees125175​a. For Years 1 and 2, determine the revenue per employee (excluding members).b. Interpret the results.

Q: Jesse and Tim form a partnership by combining the assets of their separate businesses. Jesse 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 valued at $58,000, 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. Tim contributes cash of $21,000 and merchandise inventory of $44,500. The partners agree that the merchandise inventory is to be valued at $48,000. Journalize the entries in the partnership accounts for (a) Jesse’s investment and (b) Tim’s investment.

Q: 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:a. No agreement concerning division of net incomeb. Divided in the ratio of original capital investmentc. Interest at the rate of 15% allowed on original investments and the remainder divided in the ratio of 2:3 (2/5 to Holly and 3/5 to Luke)d. Salary allowances of $50,000 and $70,000, respectively, and the balance divided equallye. Allowance of interest at the rate of 15% on original investments, salary allowances of $50,000 and $70,000, respectively, and the remainder divided equally

Q: Kala and Leah, partners in Best Designs, have capital balances of $40,000 and $60,000, respectively. Adam joins the partnership by buying one-half of Kala’s interest for $30,000. In addition, because of Adam’s outstanding sales skills, the partners agree to increase his interest to 40% if he invests another $10,000. The income-sharing ratio of Kala, Leah, and Adam is 4:3:1.a. Journalize the entries for the admission of Adam to the partnership. b. Immediately after Adam’s admission to the partnership, Leah sells one-fourth of her interest to Denton for $35,000. Journalize the entry for this transaction.

Q: Immediately prior to the process of liquidation, partners Micco, Niccum, and Orwell have capital balances of $70,000, $20,000, and $30,000, respectively. There is a cash balance of $10,000, noncash assets total $160,000, and liabilities total $50,000. The partners share net income and losses in the ratio of 2:2:1.Journalize the entries for the following liquidation using Noncash Assets as the account title for the noncash assets and Liabilities as the account title for all creditors' claims.a. Sold the noncash assets for $80,000 in cash.b. Divided the loss on realization.c. Paid the liabilities.d. Received cash from the partner with the deficiency.e. Distributed the cash to the partners.

Q: What is a partnership? Describe a partnership in terms of its characteristics.

Q: 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.​a. Journalize the entry for the revaluation of land. (The partnership does not use the temporary asset revaluation account.)b. Journalize the entry to admit Watson.

Q: Rodgers and Winter had capital balances of $60,000 and $90,000, respectively, at the beginning of the current fiscal year. The articles of partnership provide for salary allowances of $25,000 and $30,000, respectively; an allowance of interest at 12% on the capital balances at the beginning of the year; and the remaining net income divided equally. Net income for the current year was $110,000.a. Present the Division of Net Income section of the income statement for the current year.b. Assuming that the net income had been $65,000 instead of $110,000, present the Division of Net Income section of the income statement for the current year.

Q: Prior to liquidating their partnership, Porter and Robert had capital account balances of $160,000 and $100,000, respectively. Prior to liquidation, the partnership had no cash assets other than what was realized from the sale of the partnership assets. These partnership assets were sold for $250,000. The partnership had $10,000 of liabilities. Porter and Robert share income and losses equally. ​Determine the amount received by Porter as a final distribution from liquidation of the partnership.

Q: After discontinuing the ordinary business operations and closing the accounts on May 7, the ledger of the partnership of Anna, Brian, and Cole indicated the following:Cash$ 7,500 Noncash Assets105,000 Liabilities $ 27,500Anna, Capital 45,000Brian, Capital 15,000Cole, Capital 25,000 $112,500$112,500The partners share net income and losses in the ratio of 3:2:1. Between May 7 and May 30, the noncash assets were sold for $150,000, the liabilities were paid, and the remaining cash was distributed to the partners.a. Prepare a statement of partnership liquidation.b. Assume the same facts as in (a), except that the noncash assets were sold for $45,000 and any partner with a capital deficiency pays the amount of the deficiency to the partnership. Prepare a statement of partnership liquidation.

Q: Emmett and Sierra formed a partnership dividing income as follows:1. Annual salary allowance to Emmett of $48,0002. Interest of 8% on each partner’s capital balance on January 13. Any remaining net income divided equallyEmmett and Sierra had $25,000 and $140,000, respectively, in their January 1 capital balances. Net income for the year was $200,000.How much net income should be distributed to Emmett?

Q: Jackson and Campbell have capital balances of $100,000 and $300,000, respectively. Jackson devotes full time and Campbell one-half time to the business. Determine the division of $150,000 of net income under each of the following assumptions:a. No agreement as to division of net incomeb. In ratio of capital balancesc. In ratio of time devoted to business

Q: Reardon and Reese had capital balances of $140,000 and $160,000, respectively, at the beginning of the current fiscal year. The partnership agreement provides for salary allowances of $25,000 and $35,000, respectively; an allowance of interest at 12% on the capital balances at the beginning of the year; and the remaining net income divided equally. Net income for the current year was $120,000.a. Present the Division of Net Income section of the income statement for the current year.b. Assuming that the net income had been $76,000 instead of $120,000, present the Division of Net Income section of the income statement for the current year.

Q: Hamir, Darci, and Pete are partners sharing income in the ratio of 3:2:1. After the firm’s loss from liquidation is distributed, the capital account balances were Hamir, $45,000 Dr.; Darci, $90,000 Cr., and Pete, $64,000 Cr. If Hamir is personally bankrupt and unable to pay any of the $45,000, what will be the amount of cash received by Darci and Pete upon liquidation? Show your work.

Q: Prior to liquidating their partnership, Craig and Jenny had capital accounts of $70,000 and $110,000, respectively. The partnership assets were sold for $285,000. The partnership had $25,000 of liabilities. Craig and Jenny share income and losses equally. Determine the amount received by Jenny as a final distribution from liquidation of the partnership.

Q: 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.​Journalize the entry for Smith’s contribution to the partnership.

Q: Sharp and Townson had capital balances of $60,000 and $120,000, respectively, on January 1 of the current year. On May 8, Sharp invested an additional $10,000 in the partnership. During the year, Sharp and Townson withdrew $25,000 and $45,000, respectively. The revenue account at the end of the year had a balance of $600,000, and the expense accounts had a balance of $510,000. Sharp and Townson have agreed to split net income on a 2:1 basis (2/3 to Sharp and 1/3 to Townson). ​a. Prepare the statement of partnership equity for the current year.b. Journalize the entries to close the revenue and expense accounts and the drawing accounts.

Q: After the tangible assets have been adjusted to current market prices, the capital accounts of Harper and Kahlil have balances of $60,000 and $90,000, respectively. Fay is to be admitted to the partnership, contributing $45,000 cash, for which she is to receive an ownership equity of $60,000. All partners share equally in income.​a. Journalize the entry for the admission of Fay, who is to receive a bonus of $15,000.b. What are the capital balances of each partner after the admission of the new partner?

Q: The capital accounts of Heidi and Moss have balances of $90,000 and $65,000, respectively, on January 1, the beginning of the current fiscal year. On April 10, Heidi invested an additional $8,000. During the year, Heidi and Moss withdrew $40,000 and $32,000, respectively. Revenues were $540,000 and expenses were $420,000 for the year. The articles of partnership make no reference to the division of net income.a. Prepare a statement of partnership equity for the partnership of Heidi and Moss.b. Journalize the entries to: (1) Close the revenues and expenses accounts. (2) Close the drawing accounts.

Q: Benson contributed land, inventory, and $22,000 cash to a partnership. The land had a book value of $65,000 and a market value of $111,000. The inventory had a book value of $60,000 and a market value of $58,000. The partnership also assumed a $52,000 note payable owned by Benson that was used originally to purchase the land.​Journalize the entry for Benson’s contribution to the partnership.

Q: Barton and Fallows form a partnership by combining the assets of their separate businesses. Barton contributes accounts receivable with a face amount of $50,000 and equipment with a cost of $190,000 and accumulated depreciation of $100,000. The partners agree that the equipment is to be valued at $85,000, that $3,500 of the accounts receivable are completely worthless and are not to be accepted by the partnership, and that $1,500 is a reasonable allowance for the uncollectibility of the remaining accounts receivable. Fallows contributes cash of $28,500 and merchandise inventory of $55,500. The partners agree that the merchandise inventory is to be valued at $60,000. Journalize the entries in the partnership accounts for (a) Barton’s investment and (b) Fallows’s investment.

Q: 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.

Q: Top Dog, LLC provides repair services for oil rigs. The firm has five members in the LLC, which did not change between the first year and the second year. During Year 2, the business expanded into three new regions of the country. The following revenue and employee information is provided: Year 1Year 2Revenues (in thousands)$60,525$58,500Number of employees120160a. For Years 1 and 2, determine the revenue per employee (excluding members).b. Interpret the results.

Q: Amazon invested $128,000 in the Jungle and River Partnership for ownership equity of $128,000. Prior to the investment, equipment was revalued to a market value of $90,000 from a book value of $72,000. Jungle and River share net income in a 2:1 ratio.​a. Journalize the entry for the revaluation of equipment. (The partnership does not use the temporary asset revaluation account.)b. Journalize the entry to admit Amazon.

Q: Gleason invested $90,000 in the James and Kirk Partnership for ownership equity of $90,000. Prior to the investment, land was revalued to a market value of $425,000 from a book value of $200,000. James and Kirk share net income in a 1:2 ratio.​a. Journalize the entry for the revaluation of land. (The partnership does not use the temporary asset revaluation account.)b. Journalize the entry to admit Gleason.

Q: S. Stephens and J. Perez are partners in Space Designs. Stephens and Perez share income equally. D. Fredericks will be admitted to the partnership. Prior to the admission, equipment was revalued downward by $8,000. The capital balances of each partner are $100,000 and $139,000, respectively, prior to the revaluation. Space Designs does not use the temporary asset revaluation account.a. Journalize the entry for the asset revaluation.b. Journalize the entry for Fredericks’ admission under the following independent situations: (1) Fredericks purchased a 20% interest for $50,000. (2) Fredericks purchased a 30% interest for $125,000.

Q: Gentry, sole proprietor of a hardware business, decides to form a partnership with Noel. Gentry’s accounts are as follows: Book ValueMarket Value Cash$ 25,000 $ 25,000 Accounts Receivable (net)52,000 45,000 Inventory112,000 125,000 Land40,000 100,000 Building (net)300,000 340,000 Accounts Payable25,000 25,000 Mortgage Payable145,000 145,000 ​Noel agrees to contribute $80,000 for a 20% interest. Journalize the entries for (a) Gentry’s investment and (b) Noel’s investment.

Q: 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.​a. Journalize the entry for the revaluation of land. (The partnership does not use the temporary asset revaluation account.)b. Journalize the entry to admit Wonder.

Q: Prior to liquidating their partnership, Samuel and Brian had capital accounts of $60,000 and $240,000, respectively. The partnership assets were sold for $120,000. The partnership had no liabilities. Samuel and Brian share income and losses equally.a. Determine the amount of Samuel’s deficiency.b. Determine the amount distributed to Brian, assuming Samuel is unable to satisfy the deficiency.

Q: Emerson and Dakota formed a partnership dividing income as follows:1. Annual salary allowance to Emerson of $58,0002. Interest of 8% on each partner’s capital balance on January 13. Any remaining net income divided equallyEmerson and Dakota had $25,000 and $140,000, respectively, in their January 1 capital balances. Net income for the year was $220,000.How much net income should be distributed to Dakota?