Question 1

Cinema Products LP is organized as a limited partnership that sells movie props. Information related to the capital balances is given below. Compute the partnership return on equity.
 $$\begin{array} { l r r r } 
& \text { Turner } & \text { Kelly } & \text { Total } \
\text { Capital balance, beginning of year } & 890,000 & 570,000 & 1,460,000 \
\text { Net income for current year } & 85,000 & 65,000 & 150,000 \
\text { Withdrawals for current year } & 40,000 & 25,000 & 65,000
\end{array}$$

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Question 2

Discuss the options for the allocation of income and loss among partners, including with and without a partnership agreement.

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Question 3

Caitlin, Chris, and Molly are partners and share income and losses in a 3:4:3 ratio. The partnership's capital balances are Caitlin, $120,000; Chris, $80,000; and Molly, $100,000. Paul is admitted to the partnership on July 1 with a 20% equity and invests $60,000. The balance in Caitlin's capital account immediately after Paul's admission is:

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Question 4

Cinema Products LP is organized as a limited partnership that sells movie props. Information related to capital balances is given below. Compute the partner return on equity for each limited partner. How would each partner evaluate the success of the partnership? What would you recommend the partners do with respect to additional investments or withdrawals?
 $$\begin{array} { l r r r } 
& \text { Turner } & \text { Kelly } & \text { Total } \
\text { Capital balance, beginning of year } & 890,000 & 570,000 & 1,460,000 \
\text { Net income for current year } & 85,000 & 65,000 & 150,000 \
\text { Withdrawals for current year } & 40,000 & 25,000 & 65,000
\end{array}$$

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Question 5

Caitlin, Chris, and Molly are partners and share income and losses in a 3:4:3 ratio. The partnership's capital balances are Caitlin, $120,000; Chris, $80,000; and Molly, $100,000. Paul is admitted to the partnership on July 1 with a 20% equity and invests $60,000. The balance in Paul's capital account immediately after his admission is:

Accepted Answer

First, we need to calculate the total capital balance of the partnership:

Caitlin: $120,000
Chris: $80,000
Molly: $100,000
Total: $300,000

Next, we need to determine the portions of income and loss that each partner will receive based on their ratio. We can do this by adding the ratio numbers together to get the denominator:

3 + 4 + 3 = 10

Caitlin's portion:
3/10 x Total = 3/10 x $300,000 = $90,000

Chris's portion:
4/10 x Total = 4/10 x $300,000 = $120,000

Molly's portion:
3/10 x Total = 3/10 x $300,000 = $90,000

Now we can determine Paul's initial capital balance. He is entering the partnership with a 20% equity, which means his portion of the total capital balance will be:

20% x $300,000 = $60,000

So Paul's initial capital balance is $60,000.

Question 6

What are the ways a partner can withdraw from a partnership? Explain how to account for the withdrawal of a current partner from a partnership.

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Question 7

Identify and discuss the key characteristics of partnerships. Also, identify other organizations that possess partnership characteristics.

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Question 8

Explain the steps involved in the liquidation of a partnership.

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Question 9

How are partners' investments in a partnership recorded?

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Question 10

Define the partner return on equity ratio and explain how a specific partner would use this ratio.

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Question 11

What factors should be considered before establishing a partnership?

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Question 12

What are the ways that a new partner can be admitted to an existing partnership? Explain how to account for the admission of the new partner under each of these circumstances.

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Question 13

Match between columns
                        Premises: A partnership that has two classes of partners, limited partners and general partners. Limited partners have no personal liability beyond the amount they invest in the partnership, and have no active role except as specified in the partnership agreement.
An unincorporated association of two or more persons to pursue a business for profit as co-owners.
A financial statement that shows total capital balances at the beginning of the period, any additional investment by partners, the income or loss of the period, the partners' withdrawals, and the ending capital balances.
The legal relationship among general partners that makes each of them personally responsible for paying the debts of the partnership if the partnership cannot pay.
A partnership that protects innocent partners from malpractice or negligence claims resulting from the acts of another partner.
A corporation with 100 or fewer stockholders that can elect to be treated as a partnership for income tax purposes but retain the same limited liability as other corporations.
The legal relationship among partners whereby each partner can commit or bind the partnership to any contract within the scope of the partnership's business.
A corporation that does not qualify for nor elect to be treated as a partnership for income tax purposes and therefore is subject to income taxes.
A partner who assumes unlimited liability for the debts of the partnership.
The agreement between partners that sets terms under which the affairs of the partnership are conducted.

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Quiz 12: Accounting for Partnerships