FinancialAccounting-OP_YioY6nY-193

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Questions
1. 15.1 Does a partnership pay income tax?
2. 15.1 Can a partner’s personal assets in a limited liability partnership be at risk?
3. 15.2 Can a partnership assume liabilities as part of one of the partner’s contributions?
4. 15.2 Does each partner have to contribute an equal amount of assets in order to split profit and losses?
5. 15.3 What types of bases for dividing partnership net income or net loss are available?
6. 15.3 Angela and Agatha are partners in Double A Partners. When they withdraw cash for personal use,
how should that be recorded in the accounting records?
7. 15.3 On February 3, 2016 Sam Singh invested $90,000 cash for a 1/3 interest in a newly formed
partnership. Prepare the journal entry to record the transaction.
8. 15.5 Why do partnerships dissolve?
9. 15.5 What are the four steps involved in liquidating a partnership?
10. 15.5 When a partner withdraws from the firm, which accounts are affected?
11. 15.5 What is the first step in a partnership liquidation (termination and sale of assets)?
12. 15.5 When a partnership liquidates, do partners get paid first or do creditors get paid first?
13. 15.5 Coffee Partners decides to close due to the increased competition from the national chains. If after
liquidating the noncash assets there is not enough cash to cover accounts payable, what happens?
Exercise Set A
EA1. 15.2 On May 1, 2017, BJ and Paige formed a partnership. Each contributed assets with the following
agreed-upon valuations.
Prepare a separate journal entry to record each partner’s contributions.
EA2. 15.3 The partnership of Chase and Chloe shares profits and losses in a 70:30 ratio respectively after
Chloe receives a $10,000 salary. Prepare a schedule showing how the profit and loss should be divided,
assuming the profit or loss for the year is:
A. $ 30,000
B. $ 6,000
C. ($10,000)
Chapter 15 Partnership Accounting 951
EA3. 15.4 The partnership of Tasha and Bill shares profits and losses in a 50:50 ratio, and the partners have
capital balances of $45,000 each. Prepare a schedule showing how the bonus should be divided if Ashanti joins
the partnership with a $60,000 investment. The partner’s new agreement will share profit and loss in a 1:3
ratio.
EA4. 15.5 Cheese Partners has decided to close the store. At the date of closing, Cheese Partners had the
following account balances:
A competitor agrees to buy the inventory and store fixtures for $20,000. Prepare the journal entries detailing
the liquidation, assuming that partners Colette and Swarma are sharing profits on a 50:50 basis:
B Exercise Set B
EB1. 15.4 The partnership of Michelle, Amal, and Maureen has done well. The three partners have shared
profits and losses in a 1:3 ratio, with capital balances of $60,000 each. Maureen wants to retire and withdraw.
Prepare a schedule showing how the cost should be divided if Amal and Michelle decide to pay Maureen
$70,000 for retirement of her capital account and the new agreement will share profits and losses 50:50.
Problem Set A
PA1. 15.3 The partnership of Tatum and Brook shares profits and losses in a 60:40 ratio respectively after
Tatum receives a 10,000 salary and Brook receives a 15,000 salary. Prepare a schedule showing how the profit
and loss should be divided, assuming the profit or loss for the year is:
A. $40,000
B. $25,000
C. ($5,000)
In addition, show the resulting entries to each partner’s capital account. Tatum’s capital account balance is
$50,000 and Brook’s is $60,000.
PA2. 15.4 Arun and Margot want to admit Tammy as a third partner for their partnership. Their capital
balances prior to Tammy’s admission are $50,000 each. Prepare a schedule showing how the bonus should be
divided among the three, assuming the profit or loss agreement will be 1:3 once Tammy has been admitted
and her contribution is:
A. $20,000
B. $80,000
C. $50,000.
In addition, show the resulting journal entries to each of the three partners’ capital accounts.
PA3. 15.5 When a partnership is liquidated, any gains or losses realized by the sale of noncash assets are
allocated to the partners based on their income sharing ratio. Why?
952 Chapter 15 Partnership Accounting
This OpenStax book is available for free at http://cnx.org/content/col25448/1.4
B Problem Set B
PB1. 15.3 The partnership of Magda and Sue shares profits and losses in a 50:50 ratio after Mary receives a
$7,000 salary and Sue receives a $6,500 salary. Prepare a schedule showing how the profit and loss should be
divided, assuming the profit or loss for the year is:
A. $10,000
B. $5,000
C. ($12,000)
In addition, show the resulting entries to each partner’s capital account.
PB2. 15.4 The partnership of Arun, Margot, and Tammy has been doing well. Arun wants to retire and move
to another state for a once-in-a-lifetime opportunity. The partners’ capital balances prior to Arun’s retirement
are $60,000 each. Prepare a schedule showing how Arun’s withdrawal should be divided assuming his buyout
is:
A. $70,000
B. $45,000
C. $60,000.
In addition, show the resulting entries to the capital accounts of each of the three.
PB3. 15.5 Match each of the following descriptions with the appropriate term related to partnership
accounting.
A. Each and every partner can enter into contracts on behalf of the
partnership
i. liquidation
B. The business ceases operations. ii. capital deficiency
C. How partners share in income and loss iii. admission of a new
partner
D. Adding a new partner by contributing cash iv. mutual agency
E. A partner account with a debit balance v. income sharing ratio
Chapter 15 Partnership Accounting 953
Thought Provokers
TP1. 15.1 While sole proprietorships and corporations are the most popular forms of business organization,
the limited liability company (LLC) is a close third. Limited liability companies are treated like partnerships in
the majority of situations. Why do you think LLCs are gaining in popularity?
TP2. 15.5 A partnership is thriving. The three partners get along well; they complement each other’s skill
sets and enjoy each other’s company. One of the partners, Melinda, begins to behave differently. She begins
coming to work late or not at all. On several occasions she is spotted leaving the hotel next door in the
afternoon. The other partners are concerned about the change in her behavior. They confront her and
Melinda denies that anything is different. She points out that her work is still getting done and that she wants
a little more flexibility in her hours. The other partners are not convinced and decide to terminate the
partnership agreement. Can the other partners break the agreement? What considerations must the partners
take into account?
954 Chapter 15 Partnership Accounting
This OpenStax book is available for free at http://cnx.org/content/col25448/1.4
Chapter Outline
16.1 Explain the Purpose of the Statement of Cash Flows
16.2 Differentiate between Operating, Investing, and Financing Activities
16.3 Prepare the Statement of Cash Flows Using the Indirect Method
16.4 Prepare the Completed Statement of Cash Flows Using the Indirect Method
16.5 Use Information from the Statement of Cash Flows to Prepare Ratios to Assess Liquidity and
Solvency
16.6 Appendix: Prepare a Completed Statement of Cash Flows Using the Direct Method
Why It Matters
Most financial accounting processes focus on the accrual basis of accounting, which reflects revenue earned,
regardless of whether that revenue has been collected or not, and the related costs involved in producing that
revenue, whether those costs have been paid or not. Yet the single-minded focus on accrued revenues and
expenses, without consideration of the cash impact of these transactions, can jeopardize the ability of users of
the financial statements to make well-informed decisions. Some investors say that “cash is king,” meaning
that they think a company’s cash flow is more important than its net income in determining investment
opportunities. Companies go bankrupt because they run outof cash. Financial statement users should be able
to develop a picture of how well a company’s net income generates cash and the sources and uses of a
company’s cash. From the statement of cash flows, it becomes possible to reconcile income on the income
statement to the cash actually generated during the same period. Having cash alone is not important, but the
source and use of cash are also important, specifically where the cash is coming from. If the business is
generating cash from operations (selling products and services), that is positive. If the company only has cash
Figure 16.1 Cash. (credit: modification of “Money” by “Tax Credits”/Flickr, CC BY 2.0)
16
Statement of Cash Flows
	Chapter 15. Partnership Accounting
	Questions
	Exercise Set A
	Exercise Set B
	Problem Set A
	Problem Set B
	Thought Provokers
	Chapter 16. Statement of Cash Flows
	Table of Contents
	Why It Matters*