115. The BlueFin Partnership agrees to dissolve. The remaining cash balance after liquidating
partnership assets and liabilities is $60,000. The final capital account balances are: Smith,
$30,000; Nagy, $20,000; and Russ, $10,000. Prepare the journal entry to distribute the
remaining cash to the partners.
116. The BlueFin Partnership agrees to dissolve. The cash balance after selling all assets and
paying all liabilities is $56,000. The final capital account balances are: Smith, $33,000; Nagy,
$27,000; and Russ, ($4,000). Russ agrees to pay $4,000 cash from personal funds to settle his
deficiency. Prepare the journal entries to record the transactions required to dissolve this
partnership.
Answer:
117. The BlueFin Partnership agrees to dissolve. The cash balance after selling all assets and
paying all liabilities is $60,000. The final capital account balances are: Smith, $35,000; Nagy,
$29,000; and Russ, ($4,000). Russ is unable to pay the capital deficiency. Prepare the journal
entries to record the transactions required to dissolve this partnership.
Answer:
118. Suze and Bess formed the Suzy B Company by making capital contributions of $130,000
and $195,000 respectively. They predict annual partnership income of $230,000 and are
considering the following alternative plans of sharing income and loss: (a) in the ratio of their
initial capital investments; or (b) salary allowances of $40,000 to Suze and $35,000 to Bess;
interest allowances of 12% on their initial capital investments; and the balance shared equally.
Assuming that both partners put about the same amount of time into the business, which
method of allocating income would be best?
119. Suze and Bess formed the Suzy B Company by making capital contributions of $130,000
and $195,000 respectively. The annual partnership income of $230,000 is to be allocated
assuming a salary allowance of $40,000 to Suze and $35,000 to Bess; interest allowances of
12% on their initial capital investments; and the balance shared equally. Prepare the entries to
record the initial capital investments, the allocation of net income, and close the partner’s
withdrawal accounts assuming that Suze withdrew $50,000 and Bess withdrew $55,000.
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120. Paul and Peggy’s company is organized as a partnership. At the prior year-end, Paul’s
equity balance was $352,000 and Peggy’s was $256,000. For the current year, partnership net
income is $137,000 ($77,000 allocated to Paul and $60,000 allocated to Peggy); withdrawals
are $87,000 ($45,000 for Paul and $42,000 for Peggy). Compute the total partnership return
on equity and the individual partner return on equity ratios.
121. Brit, Franc, and Scot who share income and loss in a 2:2:1 ratio, plan to liquidate their
partnership. At liquidation, their balance sheet appears as follows. Prepare journal entries for
(a) the sale of land and equipment sold as a package for $500,000, (b) the allocation of the
gain or loss, (c) the payment of the liabilities, and (d) the distribution of cash to the individual
partners.
Brit, Franc, and Scot
Balance Sheet
January 31
Assets
Liabilities and Equity
Cash
$150,000
Accounts Payable
$221,500
Equipment
200,000
Brit, Capital
210,000
Land
400,000
Franc, Capital
178,000
Scot, Capital
140,500
Total assets
$750,000
Total liabilities and equity
$750,000
122. Jane, Castle, and Sean are partners who share income and loss in a 3:2:2 ratio. The
partnership’s capital balances are as follows: Jane, $332,000; Castle, $124,000; and Sean,
$214,000. Sean decides to withdraw from the partnership, and the partners agree not to have
the assets revalued upon Sean’s retirement. Prepare journal entries to record Sean’s
withdrawal from the partnership under each of the following separate assumptions: Sean (a)
sells his interest to Conner for $200,000 after Jane and Castle approve the entry of Conner as
a partner; (b) is paid $214,000 in partnership cash for his equity; (c) is paid $205,000 in
partnership cash for his equity; (d) is paid $220,000 in partnership cash for his equity.
123. Jane, Castle, and Sean are partners who share income and loss in a 4:2:2 ratio. The
partnership’s capital balances are as follows: Jane, $292,000; Castle, $114,000; and Sean,
$194,000. Conner is admitted to the partnership on March 1 with a 25% equity. Prepare the
journal entries to record Conner’s entry into the partnership under each of the following
separate assumptions: Conner invests (a) $200,000; (b) $180,000; and (c) $240,000.
124. On May 1, Fine and Max formed a partnership. Fine contributed cash of $90,000 and
equipment valued at $152,000. Max contributed land valued at $120,000 and a building
valued at $250,000. The partnership also assumed responsibility for Max’s $110,000 long–
term note payable associated with the land and building. The partners agreed to share income
as follows: Fine is to receive a salary allowance of $38,000, both are to receive an annual
interest allowance of 8% of their beginning-year capital investments, and any remaining
income or loss is to be shared equally. During the year, Fine withdrew $40,000 and Max
withdrew $42,000 cash. After the adjusting and closing entries are made to the revenue and
expense accounts at the end of the year, the Income Summary account had a credit balance of
$140,000. Prepare the journal entries to record (a) the partners’ initial capital investments, (b)
their cash withdrawals, and (c) closing of both the Withdrawals and Income Summary
accounts.
125. Sam and Dave’s company is organized as a partnership. At the prior year-end, Sam’s
equity balance was $258,000 and Dave’s was $212,000. For the current year, partnership net
income is $125,000 ($75,000 allocated to Sam and $50,000 allocated to Dave); withdrawals
are $77,000 ($40,000 for Sam and $37,000 for Dave). Compute the total partnership return
on equity and the individual partner return on equity ratios.
Fill in the Blank Questions
126. The life of a partnership is ____________________ in duration.
127. A ________________ is an unincorporated association of two or more people to pursue
a business for profit as co-owners.
128. __________________ means that partners can commit or bind the partnership to any
contract within the scope of the partnership business.
129. __________________ implies that each partner in a partnership can be called on to pay a
partnership’s debts.
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130. A partnership that has at least two classes of partners, general and limited, allows the
limited partners to have no personal liability beyond the amounts they invest in the
partnership, and the limited partners have no active role except as specified in the partnership
agreement is a ___________________ partnership.
131. A partnership designed to protect innocent partners from malpractice or negligence
claims resulting from the acts of other partners is a ________________________ partnership.
132. A relatively new form of business organization that protects partners with limited
liability, allows limited partners to assume an active management role, and is taxed as a
partnership is a ______________________________
133. Partners in a partnership are taxed on ___________________, not on their withdrawals.
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134. Partner return on equity is calculated as ______________________________.
135. When a partner invests in a partnership, his/her capital account is __________ for the
invested amount.
136. During the closing process, partner’s capital accounts are _______________ for their
share of net income and _________________ for their share of net loss.
137. During the closing process, each partner’s withdrawals account is closed to __________.
138. If partners agree on how to share income, but say nothing about losses, then losses are
shared ___________________.
139. A partner can be admitted into a partnership by _______________ or by ___________.
140. If a partner withdraws from a partnership and the recorded value of his or her equity is
overstated, then a bonus goes to ________________; if the recorded value of the withdrawing
partner’s equity is understated, then a bonus goes to ____________________.
141. A _________________________ means that at least one partner has a debit balance in
his/her capital account at the point of the final distribution of cash.