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Exam 12: Accounting for Partnerships and Limited Liability Companies

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Question 61

Multiple Choice

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When a partner dies, the capital account balances of the remaining partners

A) will increase
B) will decrease
C) will remain the same
D) may increase, decrease, or remain the same

E) All of the above
F) None of the above

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Question 62

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The amount that a partner withdraws as a monthly salary allowance does affect the division of net income.

A) True
B) False

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Question 63

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If there is no written agreement as to the way income will be divided among partners

.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.

What is a partnership? List three advantages and three disadvantages of the partnership form of business organization.

Compton and Danson form a partnership in which Compton contributes $70,000 in assets and agrees to devote half time to the partnership. Danson contributed $50,000 in assets and agrees to devote full time to the partnership. If no additional information is available, how will Compton and Danson share in the division of income?

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

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.

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.

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:

Benson and Orton are partners who share income in the ratio of 1:3 and have capital balances of $70,000 and $30,000 respectively. Ramsey is admitted to the partnership and is given a 40% interest by investing $20,000. What is Orton's capital balance after admitting Ramsey?

Which of the following is a disadvantage of a partnership when compared to a corporation?

Emerson and Dakota formed a partnership dividing income as follows: 1. Annual salary allowance to Emerson of $48,000 2. Interest of 8% on each partner's capital balance on January 1 3. Any remaining net income divided equally. Emerson and Dakota had $25,000 and $140,000 respectively in their January 1 capital balances. Net income for the year was $220,000. How much net income should be distributed to Emerson?

A ratio of 3:2:1 is the same as

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.

Easy Sailing, LLC provides repair services for commercially-owned boats and yachts. The firm has 5 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: Required: a. For 2011 and 2012, determine the revenue per employee (excluding members). b. Interpret the trend between the two years.

Singer and McMann are partners in a business. Singer's original capital was $40,000 and McMann's was $60,000. They agree to salaries of $12,000 and $18,000 for Singer and McMann respectively and 10% interest on original capital. If they agree to share remaining profits and losses on a 3:2 ratio, what will Singer's share of the income (loss) be if the net loss for the year was $10,000?

A gain or loss on realization is divided among partners according to their

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.

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