Test bank accounting 25th editon warren chapter 12 accounting for

Chapter 12 Accounting for Partnerships and Limited Liability Companies Student: _ There are only four legal structures to form and operate a business True False In a general partnership, each partner is individually liable to creditors for debts incurred by the partnership, to the extent of the partner's capital balance True False A partnership is a legal entity separate from its owners True False A partnership is subject to federal income taxes True False A disadvantage of partnerships is the mutual agency of all partners True False A partnership requires only an agreement between two or more persons to organize True False Each partner may withdraw the assets he or she contributed to the partnership at any time True False When compared to a corporation, one of the major disadvantages of the partnership is its limited life True False When compared to a corporation, one of the major advantages of a partnerships is its relative ease of formation True False 10 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 True False 11 A Limited Liability Company is a business entity form designed to overcome some of the disadvantages of the partnership form True False 12 For tax purposes, a Limited Liability Company may elect to be treated as a partnership True False 13 The Limited Liability Company may elect to be manager managed rather than member managed which means that only authorized members may legally bind the corporation True False 14 Each partner has a separate capital and withdrawal account True False 15 The chart of accounts for a partnership, with the exception of drawing and capital accounts, does not differ from the chart of accounts for a sole proprietorship True False 16 The equity reporting for a Limited Liability Company is similar to that of a partnership but the changes in capital are shown on a statement of members' equity True False 17 When a partner invests noncash assets in a partnership, the assets are recorded at the partner's book value True False 18 Accounts receivable contributed to the partnership are recorded at their face value True False 19 A new partner contributes accounts receivable to a partnership which appear in the ledger of his sole proprietorship at $20,500 and there was an allowance for doubtful accounts of $750 If $600 of the accounts receivables are completely worthless, the partnership accounts receivable should be debited for $19,900 True False 20 One reason that distributions of income and loss are prepared is to obtain the information to record a closing entry True False 21 If nothing is stated, partnership income is divided in proportion to the individual partner's capital balance True False 22 The salary allocation to partners used in dividing net income would also appear as salary expense on the partnership income statement True False 23 If the articles of partnership provide for annual salary allowances of $36,000 and $18,000 to X and Y respectively and net income is $30,000, X's share of net income is $20,000 True False 24 If the net income of a partnership is less than the total of the allowances provided by the partnership agreement, the difference must be divided among the partners in the income-sharing ratio True False 25 The amount that a partner withdraws as a monthly salary allowance does not affect the division of net income True False 26 A devotes full time and B devotes one-half time to their partnership If the partnership agreement is silent concerning the division of net income, A will receive a $20,000 share of a net income of $30,000 True False 27 In the distribution of income, the net income is less than the salary and interest allowances granted; the remaining balance will be a negative amount that must be divided among the partners as though it were a loss True False 28 Details of the division of partnership income should normally be disclosed in the financial statements True False 29 Whenever a partnership is dissolved, the assets are liquidated True False 30 When a partnership dissolves, a new partnership is formed and a new partnership agreement should be prepared True False 31 Many partnerships provide for the admission of new partners or withdrawals of present partners by amending existing partnership agreements, so that the firm may continue to operate without executing a new agreement True False 32 A person may be admitted to a partnership only with the consent of all the current partners True False 33 Partnership's asset accounts should be changed from cost to fair market value when a new partner is admitted to a firm or an existing partner withdraws and dies True False 34 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 True False 35 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 True False 36 If a new partner is given a 20% interest in the firm then the new partner will receive a 20% interest in earnings True False 37 When a new partner is admitted by making an investment in the partnership, the old partners' capital accounts are always credited True False 38 When a new partner is admitted by making an investment of assets in the partnership and the new partner has to pay a premium for admission, a bonus is divided among the old partners' capital accounts True False 39 Sarno has a capital balance of $42,000 after adjusting the assets to fair market value Minton contributes $22,000 to receive a 30% interest in the new partnership The bonus paid by Minton is $2,800 True False 40 When a partner withdraws from the partnership, the partnership dissolves True False 41 If not enough partnership cash or other assets are available to pay the withdrawing partner, a liability may be created for the amount owed the withdrawing partner True False 42 When a partner withdraws from the partnership by selling his or her interest back to the partnership, the remaining partners must pay the withdrawing partner a specified amount from their personal assets True False 43 X sells to A one-half of a partnership capital interest that totals $70,000 for $40,000 A's capital account in the partnership should be credited for $40,000 True False 44 When a new partner is admitted to a partnership, all partnership assets should be revised to reflect current prices True False 45 If a new partner is to be admitted to a partnership and a bonus is attributed to the old partnership, the bonus should be divided between the capital accounts of the original partners according to their capital balances True False 46 When a new partner is admitted to a partnership, bonuses attributable to either the old partnership or to the incoming partner may be recognized in accordance with the agreement among the partners True False 47 Dissolution is the term which solely means to liquidate the partnership True False 48 In a partnership liquidation, gains and losses on the sale of partnership assets are divided among the partners' capital accounts on the basis of their capital balances True False 49 If the share of losses on realization of the sale of noncash assets exceed the balance in a partner's capital account, the resulting balance is called a deficiency True False 50 In a partnership liquidation, if a partner has a debit capital balance in his or her capital account, he or she is responsible for contributing personal assets sufficient to eliminate the deficit True False 51 The process of winding up the affairs of a partnership is referred to as realization True False 52 The distribution of cash, as the final process in winding up the affairs of a partnership, is based on the income-sharing ratio True False 53 If a partner's capital balance is a debit after it has absorbed its share of the loss on realization, the balance is referred to as a deficiency True False 54 In the liquidating process, any uncollected cash becomes a loss to the partnership and is divided among the remaining partners' capital balances based on their income-sharing ratio True False 55 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 True False 56 The statement of members’ equity is used for equity reporting of a partnership True False 57 The partner capital accounts may change due to capital additions, net income, or withdrawals True False 58 Revenue per employee may be used to measure partnership (LLC) efficiency True False 59 Which of the following is characteristic of a general partnership? A The partners have co-ownership of partnership property B The partnership is subject to federal income tax C The partnership has an unlimited life D The partners have limited liability 60 Which of the following is not a characteristic of a general partnership? A the partnership is created by a contract B mutual agency C partners share equally in net income or net losses unless an agreement states differently D dissolution occurs only when all partners agree 61 Which of the following is an advantage of a general partnership when compared to a corporation? A A partnership is more likely to have a positive net income B The partnership is relatively inexpensive to organize C Creditors to a partnership cannot attach personal assets of partners D The partnership usually hires professional managers 62 Which of the following is a disadvantage of a partnership when compared to a corporation? A The partnership is more likely to have a net loss B The partnership is easier to organize C The partnership is less expensive to organize D The partnership has limited life 63 An advantage of the partnership form of business organization is A unlimited liability B mutual agency C ease of formation D limited life 64 The characteristic of a partnership that gives the authority to any partner to legally bind the partnership and all other partners to business contracts is called A unlimited liability B ease of formation C mutual agency D dissolution 65 When a limited partnership is formed A the partnership activities are limited B all partners have limited liability C some of the partners have limited liability D none of the partners have limited liability 66 Which of the following below is not one of the four major forms of business entities that are discussed in this chapter? A Sole proprietorship B Corporation C Partnership D Subchapter S corporation 67 Which of the following below is not a characteristic of a Limited Liability Company? A unlimited life B limited legal liability C taxable D moderate ability to raise capital 68 The operating agreement for a Limited Liability Company is sometimes called: A articles of organization B articles of partnership C Schedule C D the Uniform Partnership Act 69 When a partnership is formed, assets contributed by the partners should be recorded on the partnership books at their A book values on the partners' books prior to their being contributed to the partnership B fair market value at the time of the contribution C original costs to the partner contributing them D assessed values for property purposes 70 As part of the initial investment, a partner contributes equipment that had originally cost $125,000 and on which accumulated depreciation of $100,000 has been recorded If similar equipment would cost $150,000 to replace and the partners agree on a valuation of $38,000 for the contributed equipment, what amount should be debited to the equipment account? A $38,000 B $150,000 C $125,000 D $100,000 71 As part of the initial investment, Omar contributes accounts receivable that had a balance of $22,500 in the accounts of a sole proprietorship Of this amount, $2,000 is completely worthless For the remaining accounts, the partnership will establish a provision for possible future uncollectible accounts of $1,500 The amount debited to Accounts Receivable for the new partnership is A $19,000 B $22,500 C $21,000 D $20,500 72 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 73 Franco and Elisa share income equally During the current year the partnership net income was $40,000 Franco made withdrawals of $12,000 and Elisa made withdrawals of $17,000 At the beginning of the year, the capital account balances were: Franco capital, $40,000; Elisa capital, $58,000 Franco’s capital account balance at the end of the year is A $74,500 B $62,500 C $60,000 D $48,000 74 Franco and Elisa share income equally During the current year the partnership net income was $40,000 Franco made withdrawals of $12,000 and Elisa made withdrawals of $17,000 At the beginning of the year, the capital account balances were: Franco capital, $42,000; Elisa capital, $58,000 Elisa’s capital account balance at the end of the year is A $81,000 B $50,000 C $61,000 D $95,000 174 Benson contributed land, inventory, and $22,000 cash to a partnership The land had a book value of $65,000 and a market value of $111,000 The inventory had a book value of $60,000 and a market value of $58,000 The partnership also assumed a $52,000 note payable owned by Benson that was used originally to purchase the land Required: Provide the journal entry for Benson’s contribution to the partnership Cash 22,000 Inven 58,000 tory Land 111,000 Notes Payable Benson, Capital 52,000 139,000 175 Prior to liquidating their partnership, Porter and Robert had capital accounts of $160,000 and $100,000 respectively Prior to liquidation, the partnership had no cash assets other than what was realized from the sale of the partnership assets These partnership assets were sold for $250,000 The partnership had $10,000 of liabilities Porter and Robert share income and losses equally Required: Determine the amount received by Porter as a final distribution from liquidation of the partnership Porter’s equity prior to liquidation $ 160,000 Realization of asset sales Book value of assets ($160,000 + $100,000 + $10,000) Loss on liquidation Porter’s share of loss (50% ´ $20,000) Porter’s cash distribution $ 250,000 270,000 $ 20,000 (10,000) $ 150,000 176 Prior to liquidating their partnership, Samuel and Brian had capital accounts of $60,000 and $240,000, respectively The partnership assets were sold for $120,000 The partnership had no liabilities Samuel and Brian share income and losses equally Required: a Determine the amount of Samuel’s deficiency b Determine the amount distributed to Brian, assuming Samuel is unable to satisfy the deficiency a Samuel’s equity prior to liquidation $ 60,000 Realization of asset sale $ 120,000 Book value of assets ($60,000 + $240,000) 300,000 Loss on liquidation ($ 180,000) Samuel’s share of loss (50% ´ $180,000) (90,000) Samuel’s deficiency $(30,000) b $120,000 = $240,000 - $90,000 share of loss - $30,000 Samuel’s deficiency, also equals the amount of cash realized from sale of the partnership assets 177 Easy Sailing, LLC provides repair services for commercially-owned boats and yachts The firm has members in the LLC, which did not change between 2011 and 2012 During 2012, the business expanded into three new regions of the country The following revenue and employee information is provided: Revenues (in thousands) Number of employees 2011 $50,625 125 2012 $57,750 175 Required: a For 2011 and 2012, determine the revenue per employee (excluding members) b Interpret the trend between the two years a Revenue per employee, 2011: $50,625,000/125 = $405,000 Revenue per employee, 2012: $57,750,000/175 = $330,000 b Revenues increased between the two years; however, the number of employees has increased at a faster rate Thus, the revenue per employee declined from $405,000 in 2011 to $330,000 in 2012 This indicates that the efficiency of the firm has declined in the two years This is likely the result of the expansion That is, the large increase in the employment base is the likely result of the expansion into the three new regions These new employees may need to be trained and thus are not as efficient in their jobs as the more experienced employees in the existing regions Often, a business will suffer productivity losses in the midst of significant expansion because of the inexperience of the new employees 178 Gleason invested $90,000 in the James and Kirk partnership for ownership equity of $90,000 Prior to the investment land was revalued to a market value of $425,000 from a book value of $200,000 James and Kirk share net income in a 1:2 ratio a Provide the journal entry for the revaluation of land b Provide the journal entry to admit Gleason a Land 225, 000 James, Capital Kirk, Capital b 75,0 00 150, 000 Cash Gleason, Capital 90,000 90,000 179 Top Notch, LLC provides repair services for oil rigs The firm has members in the LLC, which did not change between 2011 and 2012 During 2012, the business expanded into three new regions of the country The following revenue and employee information is provided: Revenues (in thousands) Number of employees 2011 $60,525 120 2012 $58,500 160 Required: a For 2011 and 2012, determine the revenue per employee (excluding members) b Interpret the trend between the two years a Revenue per employee, 2011: $60,525,000/120 = $504,375 Revenue per employee, 2012: $58,500,000/160 = $365,625 b Revenues increased between the two years; however, the number of employees has increased at a faster rate Thus, the revenue per employee declined from $504,375 in 2011 to $365,625 in 2012 This indicates that the efficiency of the firm has declined in the two years This is likely the result of the expansion That is, the large increase in the employment base is the likely result of the expansion into the three new regions These new employees may need to be trained and thus are not as efficient in their jobs as the more experienced employees in the existing regions Often, a business will suffer productivity losses in the midst of significant expansion because of the inexperience of the new employees 180 Match each statement to the item listed below Simple to form Place where changes in partner capital accounts for a period of time are reported A step during liquidation when partnership assets are sold Where the share of loss on realization is greater than the balance in partner capital Each partner may act on behalf of the entire partnership so that the liabilities created by one partner become the liabilities of all partners An association of two or more persons to own and manage a business for profit Used to divide the excess of allowances over loss when net losses occur The winding up process of a partnership statement of partnership equity deficiency mutual agency partnership proprietorship realization income sharing ratio liquidation 181 Match the term with the appropriate definition Without an agreement, the law will stipulate this method of sharing profits and losses When a partnership cannot pay its debts with business assets, the partners must use personal assets to meet the debt Agreement that is the contract between partners Causes the dissolution of a partnership The final step in the liquidation of a partnership Every partner can bind the business to a contract within the scope of the partnership’s regular business operations A voluntary association of two or more persons who co-own a business for profit The process of going out of business by selling the entity’s assets and paying its liabilities unlimited liability articles of partnership partnership mutual agency liquidation equally distribution of remaining cash to partners death of a partner 182 Gentry, sole proprietor of a hardware business, decides to form a partnership with Noel Gentry’s accounts are as follows: Book Value Cash Accounts Receivable (net) Inventory Land Building (net) Accounts Payable Mortgage Payable $ 25,000 52,000 112,000 40,000 300,000 25,000 145,000 Market Value $ 25,000 45,000 125,000 100,000 340,000 25,000 145,000 Noel agrees to contribute $80,000 for a 20% interest Journalize the entries to record (a) Gentry’s investment and (b) Noel’s investment (a) (b) Cash Accounts Receivable Inventory Land Building Accounts Payable Mortgage Payable Gentry, Capital 25,000 45,000 125,000 100,000 340,000 Cash Gentry, Capital Noel, Capital 80,000 29,000 25,000 145,000 465,000 109,000 183 Jeff Layton, sole proprietor of a hardware business, decides to form a partnership with Nicholas Fell Jeff’s accounts are as follows: Book Value Cash Accounts Receivable (net) Inventory Land Building (net) Accounts Payable Mortgage Payable Market Value $ 30,000 55,000 112,000 40,000 500,000 25,000 125,000 $ 30,000 45,000 135,000 100,000 540,000 25,000 125,000 Nicholas agrees to contribute $120,000 for a 20% interest Journalize the entries to record (a) Jeff’s investment and (b) Nicholas’ investment (a) (b) Cash Accounts Receivable Inventory Land Building Accounts Payable Mortgage Payable Jeff Layton, Capital 30,000 45,000 135,000 100,000 540,000 Cash Jeff Layton, Capital Nicholas Fell, Capital 120,000 44,000 25,000 125,000 700,000 164,000 184 Sharp and Townson had capital balances of $60,000 and $90,000 respectively at the beginning of the current fiscal year The articles of partnership provide for salary allowances of $25,000 and $30,000 respectively, an allowance of interest at 12% on the capital balances at the beginning of the year, with the remaining net income divided equally Net income for the current year was $110,000 (a) (b) Present the income division section of the income statement for the current year Assuming that the net income had been $55,000 instead of $110,000, present the income division section of the income statement for the current year (a) Net income Division of net income: Salary allowance Interest allowance Remaining income Net income $110,000 Sharp Townson Total $25,000 7,200 18,500 $50,700 $30,000 10,800 18,500 $59,300 $ 55,000 18,000 37,000 $110,000 (b) Net income Division of net income: Salary allowance Interest allowance Total Excess of allowances over net income Net income $55,000 $25,000 7,200 $32,200 (9,000) $23,200 $30,000 10,800 $40,800 (9,000) $31,800 $55,000 18,000 $73,000 (18,000) $55,000 185 Sharp and Townson had capital balances of $60,000 and $120,000 respectively on January of the current year On May 8, Sharp invested an additional $10,000 in the partnership During the year, Sharp and Townson withdrew $25,000 and $45,000 respectively After closing all expense and revenue accounts at the end of the year, Income Summary has a credit balance of $90,000, that Sharp and Townson have agreed to split on a 2:1 basis, respectively (a) (b) Journalize the entries to close the income summary account and the drawing accounts Prepare the statement of owner's equity for the current year (a) Income Summary Sharp, Capital Townson, Capital 90,000 Sharp, Capital Townson, Capital Sharp, Drawing Townson, Drawing 25,000 45,000 60,000 30,000 25,000 45,000 (b) Sharp and Townson Statement of Owner's Equity For Year Ended December 31 Capital, January Additional investment during the year Net income for the year Withdrawals during the year Capital, December 31 Sharp $ 60,000 10,000 $ 70,000 60,000 $130,000 25,000 $105,000 Townson $120,000 -$120,000 30,000 $150,000 45,000 $105,000 Total $180,000 10,000 $190,000 90,000 $280,000 70,000 $210,000 186 .Daja and Whitnee had capital balances of $140,000 and $160,000 respectively at the beginning of the current fiscal year The articles of partnership provide for salary allowances of $25,000 and $35,000 respectively, an allowance of interest at 12% on the capital balances at the beginning of the year, with the remaining net income divided equally Net income for the current year was $120,000 (a) (b) Present the income division section of the income statement for the current year Assuming that the net income had been $50,000 instead of $120,000, present the income division section of the income statement for the current year (a) Net income Division of net income: Salary allowance Interest allowance Remaining income Net income (b) Net income $120,000 Daja Whitnee Total $25,000 16,800 12,000 $53,800 $35,000 19,200 12,000 $66,200 $ 60,000 36,000 24,000 $120,000 $50,000 Division of net income: $25,000 16,800 $41,800 (23,000) $18,800 Salary allowance Interest allowance Total Excess of allowances over net income Net income $35,000 19,200 $54,200 (23,000) $31,200 $60,000 36,000 $96,000 (46,000) $50,000 187 Jackson and Campbell have capital balances of $100,000 and $300,000 respectively Jackson devotes full time and Campbell one-half time to the business Determine the division of $150,000 of net income under each of the following assumptions: (a) (b) (c) No agreement as to division of net income In ratio of capital balances In ratio of time devoted to business (a) Jackson $75,000 Campbell $75,000 (b) $37,500 $112,500 (c) $100,000 $50,000 Computations Jackson: 50% ´ $150,000 Campbell: 50% ´ $150,000 Jackson: 1/4 ´ $150,000 Campbell: 3/4 ´ $150,000 Jackson: 2/3 ´ $150,000 Campbell: 1/3 ´ $150,000 188 Jackson and Campbell have capital balances of $100,000 and $300,000 respectively Jackson devotes full time and Campbell one-half time to the business Determine the division of $120,000 of net income under each of the following assumptions: (a) (b) (c) (d) (e) No agreement as to division of net income In ratio of capital balances In ratio of time devoted to business Interest of 10% on capital balances and remainder equally Interest of 10% on capital balances, salaries of $40,000 to Jackson and $20,000 to Campbell, and the remainder equally (a) Jackson $60,000 Campbell $60,000 (b) $30,000 $90,000 (c) $80,000 $40,000 (d) $50,000 $70,000 (e) $60,000 $60,000 Computations Jackson: 50% ´ $120,000 Campbell: 50% ´ $120,000 Jackson: 1/4 ´ $120,000 Campbell: 3/4 ´ $120,000 Jackson: 2/3 ´ $120,000 Campbell: 1/3 ´ $120,000 Jackson: [(10% ´ $100,000) + (1/2 ´ $80,000)] Campbell: [(10% ´ $300,000) +(1/2 ´ $80,000)] Jackson: [(10% ´ $100,000) + $40,000 + (1/2 ´ $(20,000)] Campbell: [(10% ´ $300,000) + $20,000 + (1/2 ´ $(20,000)] 189 Derek and Hailey, partners sharing net income in the ratio of 2:1, admit Ben to the partnership in accordance with the following agreement: (1) (2) (3) Merchandise inventory recorded in the partnership accounts at $62,500 is to be revalued at its current replacement price of $68,500 Ben is to invest $48,000 in cash for a 30% interest in the partnership, which has total net assets (assets minus liabilities) of $130,000 after the inventory is revalued The income-sharing ratio of Derek, Hailey, and Ben is to be 2:1:1 Required: (a) Journalize the entries to record the revaluation of merchandise inventory, and the admission of Ben to the partnership (b) A few years later, the capital balances of Derek, Hailey, and Ben were $150,000, $90,000, and $55,000 respectively At this time, Kacy is admitted to the partnership by the purchase of one-half of Derek’s interest for $80,000 Journalize the entry to record the admission of Kacy to the partnership (a) (b) Merchandise Inventory Derek, Capital Hailey, Capital 6,000 Cash Derek, Capital Hailey, Capital Ben, Capital 48,000 Derek, Capital Kacy, Capital 75,000 4,000 2,000 6,000 3,000 39,000 75,000 190 Kala and Leah, partners in Best Designs, have capital balances of $40,000 and $60,000 respectively Adam joins the partnership by buying one-half of Kala’s interest for $30,000 In addition, because of Adam’s outstanding sales skills, the partners agree to increase his interest to 40% if he invests another $10,000 The income-sharing ratio of Kala, Leah, and Adam is 4:3:1 (a) (b) Journalize the entries to record the admission of Adam to the partnership Immediately after Adam’s admission to the partnership, Leah sells one-fourth of her interest to Denton for $35,000 Journalize the entry to record this transaction (a) Kala, Capital Adam, Capital 20,000 Cash Kala, Capital Leah, Capital Adam, Capital 10,000 8,000 6,000 Leah, Capital Denton, Capital 13,500 (b) 20,000 24,000 13,500 191 Immediately prior to the process of liquidation, partners Micco, Niccum, and Orwell have capital balances of $70,000, $20,000, and $30,000 respectively There is a cash balance of $10,000, noncash assets total $160,000, and liabilities total $50,000 The partners share net income and losses in the ratio of 2:2:1 Journalize the entries to record the liquidation outlined below, using Assets as the account title for the noncash assets and Liabilities as the account title for all creditors' claims (a) (b) (c) (d) (e) Sold the noncash assets for $80,000 in cash Divided the loss on realization Paid the liabilities Received cash from the partner with the deficiency Distributed the cash to the partners (a) (b) (c) (d) (e) Cash Loss on Realization Assets 80,000 80,000 Micco, Capital Niccum, Capital Orwell, Capital Loss on Realization 32,000 32,000 16,000 Liabilities Cash 50,000 Cash Niccum, Capital 12,000 Micco, Capital Orwell, Capital Cash 38,000 14,000 160,000 80,000 50,000 12,000 52,000 192 After discontinuing the ordinary business operations and closing the accounts on May 7, the ledger of the partnership of Anna, Brian, and Cole indicated the following: Cash Noncash Assets Liabilities Anna, Capital Brian, Capital Cole, Capital $ 7,500 105,000 $112,500 $ 27,500 45,000 15,000 25,000 $112,500 The partners share net income and losses in the ratio of 3:2:1 Between May 7-30, the noncash assets were sold for $150,000, the liabilities were paid, and the remaining cash was distributed to the partners (a) (b) Prepare a statement of partnership liquidation Assume the same facts as in (a), except that the noncash assets were sold for $45,000 and any partner with a capital deficiency pays the amount of the deficiency to the partnership Prepare a statement of partnership liquidation a) Statement of Partnership Liquidation For Period May 7-30 Noncash Cash + $ 7,500 Balances before realization Sale of assets & division +150,000 of gain Balances after $157,500 realization Payment of liabilities -27,500 Balances after payment $130,000 of liabilities Distribution of cash to -130,000 partners Final balances Assets = $105,000 Anna Liabilities + $27,500 -105,000 Capital Brian (3/6) + $45,000 Cole (2/6) + $15,000 (1/6) $25,000 + 22,500 + 15,000 + 7,500 $27,500 $67,500 $30,000 $32,500 -27,500 $67,500 $30,000 $32,500 - 67,500 -30,000 -32,500 0 Capital Brian (3/6) + $45,000 Cole (2/6) + $15,000 (1/6) $25,000 -30,000 - 20,000 - 10,000 0 b) Anna, Brian, and Cole Statement of Partnership Liquidation For Period May 7-30 Noncash Cash + $ 7,500 Balances before realization Sale of assets & division +45,000 of loss Balances after $52,500 realization Payment of liabilities -27,500 Balances after payment $25,000 of liabilities Receipt of deficiency + 5,000 Balances $30,000 Distribution of cash to -30,000 partners Final balances Assets = $105,000 Anna Liabilities + $27,500 -105,000 $27,500 $15,000 $5,000Dr $15,000 -27,500 $15,000 $5,000Dr $15,000 0 $15,000 - 15,000 0 + 5,000 $15,000 - 15,000 0 193 Barker invested $128,000 in the Granger and Monroe partnership for ownership equity of $128,000 Prior to the investment, equipment was revalued to a market value of $90,000 from a book value of $66,000 Granger and Monroe share net income in a 2:1 ratio Required: a Provide the journal entry for the revaluation of equipment b Provide the journal entry to admit Barker a Equi pme nt 24,0 00 Gr an ger , Ca pit al M onr oe, Ca pit al b Cas h 6, 0 8, 0 128, 000 Ba rke r, Ca pit al 8, 0 194 Watson purchased one-half of Dalton’s interest in the Patton and Dalton partnership for $45,000 Prior to the investment, land was revalued to a market value of $135,000 from a book value of $93,000 Patton and Dalton share net income equally Dalton had a capital balance of $35,000 prior to these transactions Required: a Provide the journal entry for the revaluation of land b Provide the journal entry to admit Watson a b Land 42,000 Patton, Capital Dalton, Capital 21,000 21,000 Dalto 28,000 n, Capit al Watson, Capital 28,000* *($35 ,000 + $21,0 00) ´ 50% 195 Wonder purchased one-half of Darwin’s interest in the Todd and Darwin’s partnership for $50,000 Prior to the investment, land was revalued to a market value of $175,000 from a book value of $100,000 Todd and Darwin share net income equally Darwin had a capital balance of $40,000 prior to these transactions Required: a Provide the journal entry for the revaluation of land b Provide the journal entry to admit Wonder a b Land 75,000 Todd, Capital Darwin, Capital 37,500 37,500 Darw 38,750 in, Capit al Wonder, Capital 38,750* *($40 ,000 + $37,5 00) ´ 50% 196 Describe the items which should be covered in a partnership agreement The articles of partnership should include the following points: a name, location, and nature of the business b name, capital investment, and duties of each partner c method of sharing profits and losses among the partners d withdrawals of assets allowed to the partners e procedures for settling disputes between the partners f procedures for admitting new partners g procedures for settling up with a partner who withdraws from the business h procedures for liquidating the partnership 197 What is a partnership? List three advantages and three disadvantages of the partnership form of business organization A partnership is a voluntary association of two or more persons who co-own a business for profit Advantages: Unlike a corporation, a partnership is easy to form, involves no legal procedures, and is less expensive to form A partnership brings together capital and expertise of two or more individuals Finally, partnerships pay no income taxes as corporations Disadvantages: Some disadvantages of a partnership are mutual agency, which allows each partner to sign contracts in the name of the partnership, and unlimited liability, which makes each partner individually liable for all the debts of the partnership Additionally, the limited life of a partnership requires a new agreement whenever there is a change to the existing partnership ... 11 A Limited Liability Company is a business entity form designed to overcome some of the disadvantages of the partnership form True False 12 For tax purposes, a Limited Liability Company may elect... $80,000 and $120 ,000 respectively Income Summary has a credit balance of $30,000 What is Saturn’s capital balance after closing Income Summary to Capital? A $102,500 B $120 ,000 C $ 112, 500 D $127 ,500... following below is not one of the four major forms of business entities that are discussed in this chapter? A Sole proprietorship B Corporation C Partnership D Subchapter S corporation 67 Which of the