The characteristics of a partnership include the following: (a) association of individuals, (b) limited life, and (c) co-ownership of property. Explain each of these terms.
12.2
Kevin Mathis is confused about the partnership characteristics of (a) mutual agency and (b) unlimited liability. Explain these two characteristics for Kevin.
12.3
Lance Kosinski and Matt Morrisen are considering a business venture. They ask you to explain the advantages and disadvantages of the partnership form of organization.
12.4
Why might a company choose to use a limited partnership?
12.5
Newland and Palermo form a partnership. Newland contributes land with a book value of $50,000 and a fair value of $60,000. Newland also contributes equipment with a book value of $52,000 and a fair value of $57,000. The partnership assumes a $20,000 mortgage on the land. What should be the balance in Newland's capital account upon formation of the partnership?
12.6
W. Jenson, N. Emch, and W. Gilligan have a partnership called Outlaws. A dispute has arisen among the partners. Jenson has invested twice as much in assets as the other two partners, and he believes net income and net losses should be shared in accordance with the capital ratios. The partnership agreement does not specify the division of profits and losses. How will net income and net loss be divided?
12.7
Mutt and Jeff are discussing how income and losses should be divided in a partnership they plan to form. What factors should be considered in determining the division of net income or net loss?
12.8
M. Elston and R. Ogle have partnership capital balances of $40,000 and $80,000, respectively. The partnership agreement indicates that net income or net loss should be shared equally. If net income for the partnership is $42,000, how should the net income be divided?
12.9
S. Pletcher and F. Holt share net income and net loss equally. (a) Which account(s) is (are) debited and credited to record the division of net income between the partners? (b) If S. Pletcher withdraws $30,000 in cash for personal use instead of salary, which account is debited and which is credited?
12.10
Partners T. Greer and R. Parks are provided salary allowances of $30,000 and $25,000, respectively. They divide the remainder of the partnership income in a ratio of 3:2. If partnership net income is $40,000, how much is allocated to Greer and Parks?
12.11
Are the financial statements of a partnership similar to those of a proprietorship? Discuss.
12.12
How does the liquidation of a partnership differ from the dissolution of a partnership?
12.13
Roger Fuller and Mike Rangel are discussing the liquidation of a partnership. Roger maintains that all cash should be distributed to partners on the basis of their income ratios. Is he correct? Explain.
12.14
In continuing their discussion from Question
12.13, Mike says that even in the case of a capital deficiency, all cash should still be distributed on the basis of capital balances. Is Mike correct? Explain.
12.15
Norris, Madson, and Howell have income ratios of 5:3:2 and capital balances of $34,000, $31,000, and $28,000, respectively. Noncash assets are sold at a gain and allocated to the partners. After creditors are paid, $103,000 of cash is available for distribution to the partners. How much cash should be paid to Madson?
12.16
Before the final distribution of cash, account balances are Cash $27,000; S. Shea, Capital $19,000 (Cr.); L. Seastrom, Capital $12,000 (Cr.); and M. Luthi, Capital $4,000 (Dr.). Luthi is unable to pay any of the capital deficiency. If the income-sharing ratios are 5:3:2, respectively, how much cash should be paid to L. Seastrom?
12.17
Why is Apple not a partnership?
12.18
Susan Turnbull decides to purchase from an existing partner for $50,000 a one-third interest in a partnership. What effect does this transaction have on partnership net assets?
12.19
Jerry Park decides to invest $25,000 in a partnership for a one-sixth capital interest. How much do the partnership's net assets increase? Does Park also acquire a one-sixth income ratio through this investment?
12.20
Jill Parsons purchases for $72,000 Jamar's interest in the Tholen-Jamar partnership. Assuming that Jamar has a $68,000 capital balance in the partnership, what journal entry is made by the partnership to record this transaction?
12.21
Jaime Keller has a $41,000 capital balance in a partnership. She sells her interest to Sam Parmenter for $45,000 cash. What entry is made by the partnership for this transaction?
12.22
Andrea Riley retires from the partnership of Jaggard, Pester, and Riley. She receives $85,000 of partnership assets in settlement of her capital balance of $81,000. Assuming that the income-sharing ratios are 5:3:2, respectively, how much of Riley's bonus is debited to Pester's capital account?
12.23
Your roommate argues that partnership assets should be revalued in situations like those in Question
12.21. Why is this generally not done?
12.24
How is a deceased partner's equity determined?