Smartbook Chapter 12: Accounting for Partnerships

The partnership agreement of C. Hahn and D. Barry states that Hahn receives 75% and Barry 25% of partnership income and losses. The partnership's net income is $100,000 and is allocated to the partners when the Income Summary account is closed. Which of the following items will be credited to close the Income Summary account?

C. Hahn, Capital for $75,000

The partnership agreement of E. Smith and N. Patel states that Smith receives 30% and Patel 70% of partnership income and losses. The partnership's net income is $100,000 and is allocated to the partners when the Income Summary account is closed. Which of the following items will be included in the entry to close the Income Summary account?

Debit to Income Summary for $100,000 Credit to N. Patel, Capital for $70,000 Credit to E. Smith, Capital for $30,000

When liquidating a partnership, any remaining cash should be distributed to partners:

based on capital balances

When liquidating a partnership, gains or losses from the sale of assets should be distributed to partners:

based on income-and-loss-sharing ratio

T. Dewey withdraws from her partnership with two other partners and takes cash equal to her capital balance, in the amount of $33,000. The journal entry to reflect this transaction would include a credit to the ___ account.

cash

Three partners are liquidating and have capital balances as follows: Mia $5,000; Carlyle $9,000; and Roger ($3,000). Roger will pay back his deficiency. The entry to record this transaction will include a (debit/credit) ________ to Roger, Capital in the amount of _______.

credit; $3,000

The partnership agreement of Martinez and Magden states that L. Martinez will receive 50% of all income and losses. During the current period, the company has net income of $70,000. To close the Income Summary account and give Martinez her share of net income, the partnership will (debit/credit) ___ the L. Martinez, Capital account for $___.

credit; 35000

During a liquidation, capital deficiency means that at least one partner has a (debit/credit) ___ balance in his or her capital account at the point of final cash distribution.

debit

M. Capone sells one-half of her partnership to M. Harris for $30,000 cash. The entry to record this transaction will include a (debit/credit) ___ to M. Capone, Capital.

debit

D. Sims withdraws from a partnership with two other partners. Sims agrees to take $20,000 cash in settlement of his capital balance of $15,000. The remaining $5,000 will be (debited/credited) _______ to the ______ account(s).

debited; remaining partners capital accounts

During a liquidation, capital ________ means that at least one partner has a debit balance in his or her capital account at the point of final cash distribution.

deficiency

A ___ partnership has two classes of partners—general and limited.

limited

A ________ partnership allows some partners to have limited liability. One partner must be a general partner, who assumes management duties and unlimited liability for the debts of the partnership.

limited

In partnership accounting, ownership rights are divided among partners. Each partner will use a capital account, withdrawal account, and be allocated ________ according to the partnership agreement.

net income

A partner can _________ a partnership by selling his or her interest to another person.

withdraw from

The statement of partners' equity shows each partner's beginning capital balance, additional investments, allocated income or loss, partners' ___ (expenses, withdrawals), and ending capital balance.

withdrawals

Determine the appropriate order of steps that should occur when liquidating a partnership (first to last). -Distribute remaining cash to partners. -Allocate any gains or losses to the partners. -Record sale of assets and any resulting gains or losses. -Pay all partner liabilities.

1. Record sale of assets and any resulting gains or losses. 2. Allocate any gains or losses to the partners. 3. Pay all partner liabilities. 4. Distribute remaining cash to partners.

C. Guess withdraws from a partnership with three other partners. Guess agrees to take $25,000 in settlement of her capital balance of $30,000. This creates a $___ bonus that is paid to the (remaining/withdrawing) ___ partner(s).

5000; remaining

L. Lang withdraws from a partnership with two other partners. Lang agrees to take $25,000 in settlement of her capital balance of $20,000. This creates a $___ bonus that is paid to the (remaining/withdrawing) ___ partner(s).

5000; withdrawing

True or false: A new partner is admitted to an existing partnership by purchasing an interest from a current partner or by investing assets in the partnership.

True

Which of the following is not a characteristic of a partnership?

Unlimited life

A new partner can be admitted to an existing partnership In which of the following ways? (Check all that apply.)

Purchasing interest from an existing partner Investing cash in the partnership

Identify the first step to take when liquidating a partnership.

Record the sale of noncash assets and any resulting gains or losses.

True or false: A partner can be admitted to a partnership by either selling his or her interest to another person, or distributing cash or other assets of the partnership to the partner in settlement of his or her interest.

False

The partnership agreement of T. Chung and N. Patel states that the partners will share income and loss based on beginning capital balances. At the beginning of the year, Chung's capital balance was $30,000 and Patel's capital balance was $10,000. If net income during the period was $100,000, then the entry to close net income to Chung's capital account will include a credit to T Chung, Capital in the amount of $___.

75000

T. Dole invests cash and land into an existing partnership. The cash invested is $30,000 and the land has a fair market value of $60,000. The journal entry to reflect this transaction would include a credit to T. Dole, Capital in the amount of $___.

90000

The partnership agreement of T. Chung and N. Patel states that the partners will share income and loss based on beginning capital balances. At the beginning of the year, Chung's capital balance was $30,000 and Patel's capital balance was $10,000. If net income during the period was $100,000, then the entry to close net income to Patel's capital account will include a credit to N. Patel, Capital in the amount of ________.

$25,000

Match the type of business to the correct set of characteristics. 1. Limited Partnership 2. Limited Liability Partnerships 3. S Corporation

1. Has both general partners and limited partners 2. Protects innocent partners from malpractice or negligence claims of other partners 3. Provides all shareholders with limited liability, but allows them to elect to be treated as partnership for tax purposes

Match the type of business to the correct set of characteristics. 1. Partnership 2. LLC 3. C Corporation

1. More than one owner allowed; owners have unlimited liability 2. One or more owners; owners have limited liability; no business tax 3. One or more owners; owners have limited liability; business is taxed

A. Scott withdraws from her partnership with three other partners and takes cash equal to her capital balance, in the amount of $13,000. The journal entry to reflect this transaction would include a credit to the _____ account?

Cash

Zenner and Maddox operate a partnership with beginning-year capital balances of $20,000 each. During the year, Kramer joins the partnership by investing $10,000 cash. The journal entry to record Kramer's contribution would include a debit of how much and to which account?

Cash; for $10,000

Just prior to final liquidation, Feliza agrees to pay her deficit capital balance of $5,000 to the partnership. The entry to record this transaction will include which of the following? (Check all that apply.)

Credit to Feliza, Capital Debit to Cash

T. Thomas withdraws from his partnership with five other partners and takes cash equal to his capital balance, in the amount of $25,000. The journal entry to reflect this transaction would include which of the following? (Check all that apply.)

Debit to T. Thomas, Capital Credit to Cash

Which of the following would not be shown on the statement of partners' equity?

Federal income tax

A limited partnership has two classes of partners. Which of the following terms describe the two classes of partners?

General partners and limited partners

T. Wiley sells one-half of her partnership to L. Tims for $10,000 cash. The entry to record this transaction in the books of the partnership will include a debit to which account?

T. Wiley, Capital

J. Jones sells one-half of his partnership to J. Denim for $5,000 cash. The entry to record this transaction will include a (debit/credit) __ to J. Denim, Capital.

credit

Just prior to final liquidation, Deanna agrees to pay her deficit capital balance of $2,000 to the partnership. The entry to record this transaction will include a (debit/credit) ___ to Deanna, Capital in the amount of $2,000.

credit

F. Yang withdraws from a partnership with five other partners. Yang agrees to take $10,000 cash in settlement of her capital balance of $8,000. The remaining $2,000 will be (debited/credited) ___ to the (remaining/withdrawing) ___ partners' capital accounts.

debited; remaining

T. Hernandez withdraws from a partnership with four other partners. Hernandez agrees to take $40,000 cash in settlement of his capital balance of $30,000. The remaining $10,000 will be (debited/credited) ___ to the (remaining/withdrawing) _ partners' capital accounts.

debited; remaining

A ___ is an unincorporated association of two or more people who pursue a business for profit as co-owners.

partnership

A __________ is an unincorporated association of two or more people who pursue a business for profit as co-owners.

partnership

Voluntary association, limited life, taxation, mutual agency, unlimited liability, and co-ownership of property are some of the characteristics of a ___.

partnership

In partnership accounting, ownership rights are divided among partners. Each partner will use a capital account, withdrawal account, and be allocated net income according to the

partnership;agreement or contract