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Exam 3: Partnerships

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Question 41

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A partnership has unlimited life.

A) True
B) False

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Question 42

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Which of the following statements is true?

A) Partners are employees of the partnership.
B) Salaries to partners are expenses on the income statement.
C) Salary allowances should reflect the relative value of services provided by partners.
D) Salary allowances are expenses.
E) Interest allowances are expenses.

F) D) and E)
G) B) and E)

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Question 43

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Mya and Matt are forming a partnership.Mya is investing a building that has a fair market value of $170,000.However,the building is subject to a $35,000 mortgage.Matt is investing $30,000 cash.The amount to be credited to Mya' capital account is

The legal relationship among the partners whereby each partner is an agent of the partnership and is able to bind the partnership to contracts within the apparent scope of the partnership's business is called

When a partnership is liquidated,the business ends.

Puff and Smoke agreed to share profits and losses in their partnership on a 7:3 basis,respectively,after a salary allowance of $25,000 is allocated to Puff.Earnings for the period total $115,000.What will be the total amount credited to Puff's Capital account when the Income Summary account is closed?

Reed is anxious to leave the RD Partnership.At this time her capital account is $52,000.The remaining partners,Tool and June,agree to pay Reed $50,000 in cash.Prepare the journal entry to record the withdrawal.Assume the partners have no agreement for sharing profits and losses.

The withdrawal accounts of each partner are closed to retained earnings.

The statement of changes in equity shows the beginning balance in retained earnings,plus investments,less partners' withdrawals,the income or loss,and the ending balance in retained earnings.

Discuss the characteristics of partnerships and similar organizations.

A general partner in a limited partnership

Mung and Long allow Kang to join their partnership for $50,000 cash.The recorded value of the equity being purchased is $40,000.Prepare the journal entry to record the admission of Kang to the partnership.Assume the partners have no agreement for sharing profits and losses.

In the absence of a partnership agreement,the law says income/loss sharing should be based on

Slosky invested $60,000 and Karhut invested $80,000 in a partnership and agreed to share income and losses by allowing a $6,000 annual salary allowance to Slosky and an $1,000 annual salary allowance to Karhut.As well,each partner is to receive a share of profit equal to a 10% return on capital investments,and the balance is to be divided 1/3 to Slosky and 2/3 to Karhut.Under this agreement,what are the shares of the partners if the partnership income is $85,000?

Which of the following is true about a partnership?

Cornish and Duffee form a partnership by investing $120,000 and $130,000 respectively.Their partnership agreement stipulates that Cornish will receive an annual salary allowance of $12,000,and both partners will receive an interest allowance of 5% on their capital investment.Any profit remaining is to be allocated 45% to Cornish,and 55% to Duffee.Profit for their first year of operations is $80,000.Prepare the entry to close Income Summary.

On August 1,Nola and Verna decide to form an engineering and design partnership.Of the following items shown below,Nola invested the assets and the partnership assumed the liabilities: $\begin{array}{|l|r|}\hline & \text { Fair Value } \\\hline \text { Accounts receivable } & 12,500 \\\hline \text { Land } & 160,000 \\\hline \text { Building } & 9,000 \\\hline \text { Accounts payable } & 6,000 \\\hline \text { Notes payable } & 110,000 \\\hline\end{array}$

A capital deficiency means that

If there is no partnership agreement,the law requires that profits or losses are divided among partners in the ratio of their capital investments.

The partners of the Blue Tooth Partnership agree to liquidate.After all liabilities of $100,000 are paid,the partnership's cash balance is $110,000,and the capital account balances are: Peters,$60,000; Winslow,$40,000; and Wong,$10,000.Prepare the journal entry to distribute the ending cash.