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Exam 12: Accounting for Partnerships and Limited Liability Companies

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Question 91

Multiple Choice

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Partner A has a capital balance of $40,000 and devotes full time to the partnership. Partner B has a capital balance of $50,000 and devotes half time to the partnership. If no other information is available regarding distributions, in what ratio is net income to be divided?

A) 4:5
B) 1:1
C) 5:4
D) 1:2

E) All of the above
F) B) and D)

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Question 92

Multiple Choice

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Radley and Smithers share income and losses in a 2:1 ratio after allowing for salaries to Radley of $48,000 and $60,000 to Smithers. Net income for the partnership is $96,000. Income should be divided as follows:

A) Radley, $48,000; Smithers, $48,000
B) Radley, $56,000; Smithers, $40,000
C) Radley, $64,000; Smithers, $32,000
D) Radley, $40,000; Smithers, $56,000

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

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Question 93

Multiple Choice

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The capital accounts of Harrison and Marti have balances of $160,000 and $110,000, respectively, on January 1, 2014, the beginning of the current fiscal year. On April 10, Harrison invested an additional $20,000. During the year, Harrison and Marti withdrew $96,000 and $78,000, respectively, and net income for the year was $264,000. The articles of partnership make no reference to the division of net income. Based on this information, the statement of partners' equity for 2014 would show what amount in the capital account for Marti on December 31, 2014?

Immediately prior to the admission of Allen, the Sanson-Jeremy Partnership assets had been adjusted to current market prices, and the capital balances of Sanson and Jeremy were $80,000 and $120,000 respectively. If the parties agree that the business is worth $240,000, what is the amount of bonus that should be recognized in the accounts at the admission of Allen?

The capital accounts of Harrison and Marti have balances of $160,000 and $110,000, respectively, on January 1, 2014, the beginning of the current fiscal year. On April 10, Harrison invested an additional $20,000. During the year, Harrison and Marti withdrew $96,000 and $78,000, respectively, and net income for the year was $264,000. 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 as total capital for the partnership on December 31, 2010?

Gentry, sole proprietor of a hardware business, decides to form a partnership with Noel. Gentry's accounts are as follows: Noel agrees to contribute $80,000 for a 20% interest. Journalize the entries to record (a) Gentry's investment and (b) Noel's investment.

When a limited partnership is formed

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

Whenever a partnership is dissolved, the assets are liquidated.

Benson and Orton are partners who share income in the ratio of 2:3 and have capital balances of $60,000 and $40,000 respectively. Ramsey is admitted to the partnership and is given a 40% interest by investing $20,000. What is Benson's capital balance after admitting Ramsey?

Harriet, Mickey, and Zack decide to liquidate their partnership. All assets are sold and the liabilities are paid. Following these transactions, the capital balances and profit and loss percentages are as follows: Harriet, $27,000 and 30%; Mickey, $(12,000) and 40%; Zack, $43,000 and 30%. Mickey is unable to contribute any assets to reduce the deficit. How much cash will Harriet receive as a results of the partnership liquidation?

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 Limited Liability Company is a business entity form designed to overcome some of the disadvantages of the partnership form.

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.

Partners Ken and Macki each have a $40,000 capital balance and share income and losses in a 3:2. Cash equals $20,000, noncash assets equal $120,000, and liabilities equal $60,000. If the noncash assets are sold for $50,000, and each partner is personally insolvent, Partner Macki will eventually receive cash of

When a new partner is admitted to a partnership, there should be a(n)

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

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.

In admitting a new partner, where the company chooses to use the purchase of an interest method, the capital interest of the new partner is obtained from the current partners and both the total assets and total capital are increased.

Pia and Ramona 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 $40,000. What is Pia's capital balance after closing Income Summary to Capital?