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Exam 19: Accounting for Partnerships

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Question 61

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The entry to record a partner's interest allowance includes a debit to the-------- account.

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Question 62

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If an individual invests more cash for an interest in an existing partnership than the book value of his or her interest, the old partners are said to receive a(n)------------ .

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Question 63

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Match the accounting description with correct terms by entering the proper letter in the space provided.

Lenik and Olsen are partners who share profits and losses in the ratio of 60 and 40 percent, respectively. The partnership agreement provides that each will be paid a yearly salary of $28,000. The salaries were paid to the partners during 2019 and were charged to the partners' drawing accounts. The Income Summary account has a debit balance of $12,000 after revenue and expense accounts are closed at the end of the year. 1. What amount of net income or loss will be allocated to Lenik? 2. What amount of net income or loss will be allocated to Olsen?

The assets of a sole proprietorship are revalued before they are assumed by a partnership.

If a partnership's salary and interest allowances are in excess of the net income, the entry to close Income Summary after the allowances are recorded will include a(n)------------to Income Summary.

Finch and Gerhardt are partners. Finch's capital balance is $100,000 and Gerhardt's is $140,000. They agreed to share equally in profits and losses. Both partners agree to accept a third investor, Harrison as a new partner with a 25% interest in the partnership. Harrison intends to invest $90,000 in cash. The bonus that is granted to Finch and Gerhardt equals:

The separate entity assumption requires personal expenses of a partner that are paid by the business be charged to a partner's drawing account.

The general ledger of a partnership will

Peter Nguyen and Loren Washington are partners who share profits and losses in the ratio of 60:40, respectively. On December 31, 2019, they decide that Washington will sell one-half of her interest to Grace Dolores. At that time, the balances of the capital accounts are $75,000 for Nguyen and $45,000 for Washington. The partners agree that before the new partner is admitted, certain assets should be revalued. These assets include merchandise inventory carried at $42,000 revalued at $48,000, and a building with a book value of $100,000 revalued at $120,000. On page 10 of a general journal, record the revaluation entries. Omit descriptions. Then, determine the capital balances of the two existing partners after the revaluation is made.

The cost of merchandise withdrawn by a partner for personal use is recorded as a debit to the partner's drawing account and a credit to the Purchases account, if the partnership uses the periodic inventory method.

Garvey, Lopes, and Russell are partners, sharing profits and losses in the ratio of 35, 35, and 30 percent respectively. Their partnership agreement provides that if one of them withdraws from the partnership, the assets and liabilities are to be revalued, the gain or loss allocated to the partners, and the retiring partner paid the balance of his account. Garvey withdraws from the partnership on December 31, 2019. The capital account balances before recording revaluation are Garvey, $280,000; Lopes, $230,000; and Russell, $290,000. The effect of the revaluation is to increase Merchandise Inventory by $44,000 and the Building account balance by $76,000. How much cash will be paid to Garvey?

Sam Sung and Mitchell Vaughn are partners, and each has a capital balance of $60,000. To gain admission to the partnership, Amanda Scott pays $42,000 directly to Vaughn for one-half of his equity. Scott's capital account will reflect an equity interest of:

Ben White and Lisa Green are partners, and each has a capital balance of $90,000. To gain admission to the partnership, John Brown pays $55,000 directly to White for one-half of his equity. After the admission of Brown, the total partners' equity in the records of the partnership will be

Antonio Bandala wishes to sell half of his partnership interest for $70,000 to Phillips. His capital balance is $120,000. Prepare the journal entry to record this transaction in the partnership records.

The journal entry to record the division of a partnership profit consists of a debit to each partner's capital account and a credit to Cash.

Brian Colt and Karen Randall are partners who share profits and losses in the ratio of 70:30, respectively. On December 31, 2019, they decide that Randall will sell one-half of her interest to Jane Wu. At that time, the balances of the capital accounts are $70,000 for Colt and $30,000 for Randall. The partners agree that before the new partner is admitted, certain assets should be revalued. These assets include merchandise inventory carried at $11,000 revalued at $10,000, and a building with a book value of $60,000 revalued at $70,000. On page 10 of a general journal, record the revaluation entries. Omit descriptions. Then, determine the capital balances of the two existing partners after the revaluation is made.

A gain or loss on revaluation of assets should be allocated to the partners according to the balances of their capital accounts.