Chapter 9: Partnership: Formation and Operation
A partnership begins its first year with the following capital balances: Alexander, Capital............. $90,000 Bertrand, Capital................ $100,000 Coloma, Capital.............. $160,000 The articles of partnership stipulate that profits and losses be assigned in the following manner: 1. Each partner is allocated interest equal to 5% of the beginning capital balance. 2. Bertrand is allocated compensation of $45,000 per year. 3. Any remaining profits and losses are allocated on a 3:3:4 basis, respectively. 4. Each partner is allowed to withdraw up to $25,000 cash per year. Assuming that the net income is $115,000 and that each partner withdraws the maximum amount allowed, what is the balance in Coloma's capital account at the end of the year? A. $164,000 B. $168,000
on paper A. $164,000
The capital balance for Maxwell is $110,000 and for Russell is $40,000. These two partners share profit and losses 70 percent (Maxwell) and 30 percent (Russell). Evan invests $50,000 in cash into the partnership for a 30 percent ownership. The bonus method will be used. What is Russell's capital balance after Evan's investment? A. $35,000 B. $37,000
Maxwell (70%) = $110k Russell (30%) = $40k Evan (New partner) = $50k Total = $200k $200k * 30% (ownership) = $60k (should pay) Vs $50k (did pay) 10k bonus to incoming partner* therefore, Russel's capital balance= 30% of $10k = $3,000 $40k - $3k = $37,000 B.
A partnership has the following capital balances with the partner's profit and loss percentages indicated parenthetically: Henry (50%)............................$135,000 Thomas (30%).........................$85,000 Catherine (20%).....................$80,000 Total capital.............................$300,000 Anne is going to invest $125,000 into the business to acquire a 40% ownership interest. Goodwill is to be recorded. What will be Anne's beginning capital balance? A. $200,000 B. $245,000
Total capital + Ann's portion $300,000 + $125,000 = $425,000 | Implied value of P/S | GW= 125,000/40% = $312,500 A's inv = 40% (total capital + A's inv) 125k + GW = 40% ($300k + $125k + GW) 125k + GW = 40% ($425,000 + GW) 125k + GW = $170,000 + .4GW GW - .4GW = $170,000 - $125,000 .6GW = 45,000 GW= 45,000 / .6 = $75,000 Therefore, A's inventory = 125,000 + 75,000 = $200,000 A.
How does partnership accounting differ from corporate accounting? A. The matching principle is not considered appropriate for partnership B. Individual capital accounts replace the contributed capital and retained earnings balances found in corporate accounting.
B.
Which of the following best describes the articles of partnership agreement? A. The articles of partnership are an arrangement that limit partners' liability to partnership's asset. B. The articles of partnership are a legal covenant that may be expressed orally or in writing, and form the central governance for a partnership's operations.
B.
Which of the following is not a reason for the popularity of partnerships as a legal form for businesses? A. Partnerships may be formed merely by an oral agreement. B. Partnerships can more easily generate significant amounts of capital.
B.
A partnership has the following capital balances: Allen, Capital.....................$60,000 Burns, Capital....................$30,000 Costello, Capital...................$90,000 Total capital.....................$180,000 Profits and losses are split as follows: Allen (20%); Burns (30%); and Costello (50%). Costello wants to leave the partnership and is paid $100,000 from the business based on provisions in the articles of partnership. If the partnership uses the bonus method, what is the balance of Burn's capital account after Costello withdraws? A. $24,000 B. $27,000
(2/5) 20% A = $60K - 4K =56K (3/5) 30% B = $30K - 6K =$24k 50% C = $90K - (paid) C received $100,000, Therefore C earned a $10,000 bonus 2/5 * 10,000 = $4K 3/5 * 10,000 = $6K A. $24,000
A partnership has the following capital balances with partners' profit and loss percentages indicated parenthetically: Burks (35%).....................$280,000 Donovan (40%).............$300,000 Watkins (25%).................$170,000 Total capital....................$750,000 Ranzilla agrees to pay a total of $245,000 directly to these three partners to acquire a 25% ownership interest from each. The partnership will record goodwill based on the new partner's payment. What is Donovan's capital balance after the transaction? A. $225,000 B. $294,000
245,000 / 25% = 980,000 Implied value of partnership goodwill is accruing to the existing partners 980k - 750k = $230,000 $230,000 will be divided between the three partners B's = 230k * 35% = 80,500 D's = 230k * 40% = 92,000 W's = 230k * 25% = 57,500 Donovan's new capital = 300k + 92k =$392,000 392,000 * 25% ownership interest = $98,000 $392,000 - 98,000 = $294,000 B. $294,000
The capital balance for Messalina is $210,000 and for Romulus is $140,000. These two partners share profits and losses 60 percent (M) and 40 percent (R). Claudius invests $100,000 in cash in the partnership for a 20 percent ownership. The bonus method will be used. What are the capital balances for Messalina, Romulus, and Claudius after this investment is recorded? A. $216,000 ; $144,000 ; $90,000 B. $218,000 ; $142,000 ; $88,000
60% M $210,000 40% R $140,000 20% C $100,000 Total- $450,000 Actual value of P/S $450,000 * 20% = 90,000 $90,000 should have paid vs $100,000 did pay $100k - $90k = $10,000 60% of $10k = $6,000 40% of $10k = $4,000 60% M $210,000 + 6,000 = $216k 40% R $140,000 + 4,000 = $144k 20% C $100,000 - 10,000 = $90k A.
A partnership begins its first year of operations with the following capital balances: Winston, capital............... $110,000 Durham, Capital............... $80,000 Salem, Capital................... $110,000 Capital balance................ $300,000 According to the articles of partnership, all profits will be assigned as follows: 1. Winston will be awarded an annual salary of $20,000 with $10,000 assigned to Salem. 2. The partners will be attributed interest equal to 10% of the capital balance as of the first day of the year. (300,000 * 10% = $30,000) 3. The remainder will be assigned on a 5:2:3 basis, respectively. 4. Each partner is allowed to withdraw up to $10,000 per year. The net loss for the first year of operations is $20,000, and net income for the subsequent year is $40,000. Each partner withdraws the maximum amount from the business each period. What is the balance in Winston's capital account at the end of the second year? A. $102,600 B. $104,400
A.
Pat, Jean, Lou, and Diane are partners with capital balances of $50,000, $30,000, and $20,000, respectively. These three partners share profits and losses equally. For an investment of $50,000 cash (paid to the business), MaryAnn will be admitted as a partner with a one-fourth interest in capital and profits. Based on this information, which of the following best justifies the amount of MaryAnn's investment? A. MaryAnn will receive a bonus from the other partners upon her admission to the partnership. B. The book value of the partnership's net assets was less than the fair value immediately prior to MaryAnn's investment.
P- $50K J- $30k L- $20K Total- $100K => Share Profit & Loss equally MaryAnn contributes $50K Total capital = $150K B. The book value of the partnership's net assets was less than the fair value immediately prior to MaryAnn's investment.
Patrick has a capital balance of $120,000 in a local partnership, and Caitlin has a $90,000 balance. These two partners share profits and losses by a ratio of 60 percent to patrick and 40 percent to Caitlin. Camille invests $60,000 in cash in the partnership for a 20% percent ownership. The goodwill method will be used. What is Caitlin's capital balance after this new investment? A. $99,600 B. $102,000
Pat (60%) = $120,000 Cait (40%) = $90,000 Cam (20%) = $60,000 total capital = $270,000 | Implied value of P/S= $30,000 | 60,000 / 20% = 300,000 goodwill goes to existing partner GW = $30,000 Caitlin's new capital balance = 30,000 * 40% = $12,000 90,000 + 12,000 = 102,000 B.
