Chapter 12 : Accounting for Partnership

Walt is investing in a partnership with Donald. Walt contributes equipment that originally cost $42,000, has a book value of $20,000, and a fair value of $26,000. The entry that the partnership makes to record Walt's initial contribution includes a: Debit to Equipment for $26,000. Debit to Equipment for $22,000. Debit to Equipment for $42,000. Credit to Accumulated Depreciation for $22,000.

Debit to Equipment for $26,000.

The liquidation of a partnership is a process containing the following steps: (1) Pay partnership liabilities in cash. (2) Allocate the gain or loss on realization to the partners based on their income ratios. (3) Sell noncash assets for cash and recognize a gain or loss on realization. (4) Distribute remaining cash to partners based on their remaining capital balances. Identify the proper sequencing of the steps in the liquidation process. 3, 2, 1, 4 3, 2, 4, 1 1, 3, 2, 4 1, 4, 3, 2

3, 2, 1, 4

1. Total partners' equity of a partnership is equal to the sum of all partners' capital account balances. True False

True

Partners Mickey and Minnie have agreed to share profits and losses in an 80:20 ratio, respectively, after Mickey is allowed a salary allowance of $30,000 and Minnie is allowed a salary allowance of $15,000. If the partnership had net income of $30,000 for 2019, Minnie's share of the income would be: $12,000 $15,000 $18,000 $3,000

$12,000

Daisy, Pluto, and Goofy formed a partnership with income-sharing ratios of 50%, 30%, and 20%, respectively. Cash of $300,000 was available after the partnership's assets were liquidated. Prior to the final distribution of cash, Daisy's capital balance was $200,000, Pluto's capital balance was $150,000, and Goofy had a capital deficiency of $50,000. Assuming Goofy contributes cash to match his capital deficiency, Daisy should receive cash of: $200,000 $175,000 $168,750 $131,250

$200,000

In liquidation, balances prior to the distribution of cash to the partners are: Cash $765,000; Belle, Capital $420,000; Cinderella, Capital $390,000; and Aurora, Capital $45,000 deficiency. The income ratio is 6:2:2, respectively. How much cash should be distributed to Cinderella if Aurora does not pay her deficiency? $378,750 $367,000 $356,250 $390,000

$378,750

In the liquidation of a partnership, any gain or loss on the realization of noncash assets should be allocated To the partners on the basis of their income ratios. First to creditors and the remainder to partners. To the partners on the basis of their capital balances. Only after all creditors have been paid.

$378,750

The individual assets invested by a partner in a partnership: Are jointly owned by all partners. Revert back to that partner if the partnership liquidates. Determine that partner's share of net income or loss for the year. Determine the scope of authority of that partner.

Are jointly owned by all partners.

Which of the following would not cause an increase in partnership capital? Drawings Net income Additional capital investment by the partners Initial capital investment by the partners

Drawings

Limited partnerships: Must have at least one general partner. Guarantee that a partner will receive a return. Guarantee that a partner will get back his/her original investment. Are limited to only three partners.

Must have at least one general partner.