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Chapter 19
Accounting for Partnerships
True / False Questions
1. A partnership has a limited life. It ends with the death or withdrawal of a partner.
True False
2. Some partners, known as limited partners, may not be personally liable for the debts of the
partnership.
True False
3. Unlike a corporation, a partnership does not pay income tax.
True False
4. A pool of talented professionals can form as a Not-for-Profit partnership and provide needed
community services.
True False
5. Limited partners are only liable for their investment in the partnership and are therefore
prohibited from having their names in the partnership's name.
True False
19-1
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
6. Each partner is empowered to act as an agent for the partnership creating binding
agreements no matter what the agreement concerns.
True False
7. A legal partnership does not exist unless there is a written partnership agreement.
True False
8. The Articles of Organization are the legal agreement of the partnership that specifies the
names of partners, the name, location and nature of the partnership business; the starting
date and life of the partnership as well as the rights and duties of each partner.
True False
9. Establishing a fiscal year and specifying the accounting method to be used in the partnership
are important elements of the partnership agreement.
True False
10. The cost of merchandise withdrawn by a partner for personal use is recorded as a debit to
the partner's drawing account and a credit to the Purchases account.
True False
11. The assets of a sole proprietorship are revalued before they are assumed by a partnership.
True False
12. Investments by a partner are credited to that partner's capital account.
True False
19-2
13. Family partnerships enable family members to pool funds for investment purposes and are
designed to minimize tax obligations on the transfer of property, business interests and
investments.
True False
14. The journal entry to record the division of a partnership profit consists of a debit to each
partner's capital account and a credit to Cash.
True False
15. The separate entity assumption requires personal expenses paid by the business be charged
to a partner's drawing account.
True False
16. When a partner makes a cash withdrawal that is intended to be a permanent reduction in
his/her investment, the withdrawal account is debited.
True False
17. Salary and interest allowances for partners are treated as expenses of the firm and are used
in the determination of net income.
True False
18. At the end of each fiscal year, cash is distributed to each partner in accordance with the
profit distribution included in the partnership agreement and is reported on the partner's
individual tax return.
True False
19-3
19. Salary and interest allowances are considered in distributing net income to partners but not
in distributing a net loss.
True False
20. The entry to record the salary and interest allowance on capital invested but not withdrawn
from the partnership requires a debit to the Income Summary account and a credit to the
partner's capital account.
True False
21. The entry to close a partner's drawing account at the end of a fiscal period includes a debit to
the partner's drawing account.
True False
22. It is customary for a partnership's income statement to show the division of net income or
loss for the year between the partners.
True False
23. A gain or loss on revaluation of assets should be allocated to the partners according to the
balances of their capital accounts.
True False
24. A dissolution has little impact on the business activities of the partnership whereas a
liquidation occurs when the business ceases to exist.
True False
19-4
25. The dissolution of a partnership and the formation of a new partnership may have no
noticeable effect on the continuing operations of the business.
True False
26. Gains on the revaluation of assets and liabilities upon the dissolution of a partnership are
taxable to each partner.
True False
27. James Cavanaugh, proprietor has agreed to take on a partner. His net assets are market
valued at $105,000 with book assets having a net value of $95,000. In the newly created
partnership, Cavanaugh's capital will reflect the $95,000 book value of existing assets
contributed to the new organization.
True False
28. If a new partner purchases an interest in a partnership firm directly from an existing partner,
the Cash account is debited and the new partner's capital account is credited.
True False
29. The partners of Jones & Wesson agreed that Jones can sell his $50,000 investment in the firm
to Smith. Smith pays Jones $60,000. The entry to record the transfer of capital to Smith will
include a credit to Smith, Capital for $60,000.
True False
30. Upon withdrawal, the withdrawing partner(s) may receive less than their capital account
balances.
True False
19-5
31. If the withdrawing partner receives more cash than their capital account balances, the excess
is debited to the capital accounts of the remaining partners according to their income and
loss ratios specified in the partnership agreement.
True False
Fill in the Blank Questions
32. The characteristic of a partnership that means that any partner can make valid contracts for
the partnership is known as ___________________.
________________________________________
33. An association of two or more persons to carry on, as co-owners, a business for profit is
called a(n) ___________________.
________________________________________
34. A partnership has a(n) ____________________ life because it ends with the death or
withdrawal of any partner.
________________________________________
35. Each general partner has ____________________ liability for the debts of a partnership.
________________________________________
19-6
36. The partnership ____________________ is a written contract that specifies the rights and
responsibilities of the partners.
________________________________________
37. If plant and equipment are transferred from a sole proprietorship to a partnership, the
Accumulated Depreciation accounts start with ____________________ balances in the
partnership records.
________________________________________
38. Withdrawals of assets from a partnership that are intended to permanently reduce the
invested capital are recorded as debits to the partners' ____________________ accounts.
________________________________________
39. Amounts withdrawn by partners to pay personal living expenses are recorded in their
____________________ accounts.
________________________________________
40. The entry to record a partner's interest allowance includes a debit to the
____________________ account.
________________________________________
41. When dividing partnership net income, the consideration given to the amount of time a
partner devotes to the business is called a salary ___________________.
________________________________________
19-7
42. If a partnership's salary and interest allowances are in excess of the net income, the entry to
close Income Summary after the allowances are recorded will include a(n)
____________________ to Income Summary.
________________________________________
43. If a partnership's net income is in excess of the salary and interest allowances, the entry to
close Income Summary after the allowances are recorded will include a(n)
________________________________________
44. The statement of partners' equities summarizes the changes in the partners'
_________________ accounts in an accounting period.
________________________________________
45. A partnership ____________________ occurs when the partnership's assets are sold, debts are
paid off, and the remaining cash is distributed to the partners.
________________________________________
46. If an individual invests more cash for an interest in an existing partnership than the book
value of his or her interest, the old partners are said to receive a(n) ___________________.
________________________________________
47. The financial statement prepared to summarize the changes in partner's capital accounts is
the __________________________.
________________________________________
19-8
48. The financial statement that shows the division of profits and losses among partners is the
_______________.
________________________________________
Multiple Choice Questions
49. Which of the following statements is not correct?
A. Each general partner has unlimited liability for the debts of a partnership.
B. Federal income tax is levied on the net income of a partnership and on the earnings of the
individual partners when the net income is distributed to them.
C. Any general partner can make valid contracts for a partnership and can otherwise conduct
its affairs.
D. When a partner dies or is incapacitated, the partnership is dissolved.
50. Federal income tax is levied on
A. a partnership based on its total net income when earned.
B. the partners for their individual shares of the reported partnership income.
C. the partners only when they withdraw earnings from the partnership for personal use.
D. the partnership at the end of the fiscal period.
19-9
51. Which of the following is not a characteristic of a partnership?
A. Each general partner has unlimited liability for the debts of the partnership.
B. If one partner dies or leaves the partnership, the existing partnership is terminated.
C. The partnership income is subject to a federal income tax that is levied on the business
but not on the partners.
D. The existing partnership agreement is dissolved and a new agreement is formed when a
new partner joins the partnership.
52. Smith contributed $15,000 cash while J. West contributed $20,000 cash and office equipment
costing $14,000 currently valued at $12,000 to a new partnership. The journal entry to record
the partnership investments of Smith and West is
A.
B.
C.
D.
19-10
53. On November 1, Jackson and Kiln formed a partnership with Jackson contributing land valued
at $100,000 and a building valued at $125,000. Kiln contributed $55,000 in cash. The
partnership assumed the mortgage on Jackson's property of $85,000. Profits and losses are
to be shared equally. What are the balances of the partner's capital accounts after recording
these transactions?
A. Jackson: $97,500 and Kiln:$97,500
B. Jackson: $55,000 and Kiln: $140,000
C. Jackson: $140,000 and Kiln: $55,000
D. Jackson: $225,000 and Kiln: $55,000
54. The amount that each partner withdraws from a partnership
A. cannot exceed the net income reported by the partnership.
B. should be specified in the partnership agreement.
C. is the base on which federal income taxes are levied on the partnership income.
D. is usually determined by the amount of the net income.
55. Which of the following statements is correct?
A. The general ledger of a partnership will include a single capital account, whose balance
represents the combined equity of all the partners.
B. Past-due accounts receivable should not be transferred from the financial records of a
sole proprietorship to a newly formed partnership.
C. The financial records of a new partnership are opened with a memorandum entry in the
general journal.
D. A new partner must purchase the partnership interest of another partner.
19-11
56. The entry to record the investment of cash in a partnership by one partner would consist of a
debit to
A. the partner's capital account and a credit to Cash.
B. Cash and a credit to an account called Partners' Equities.
C. Cash and a credit to the partner's capital account.
D. Cash and a credit to the partner's drawing account.
57. Ryan Fuller, a sole proprietor, entered into partnership with another individual. Fuller's
investment in the partnership included equipment that cost $32,000 when it was purchased.
The equipment has a book value of $13,000 and a net agreed-on value of $16,000. In the
financial records of the partnership, this equipment and its accumulated depreciation should
be recorded at
A. $16,000 and $0, respectively.
B. $13,000 and $0, respectively.
C. $32,000 and $19,000, respectively.
D. $16,000 and $3,000, respectively.
58. When a partner submits personal living expenses for company reimbursement and the
expense is reflected as a reduction of period profits, the company has violated the
A. Conservatism principle.
B. Going concern assumption.
C. Separate entity assumption.
D. Full disclosure principle.
19-12
59. Robert Ballard, a sole proprietor, entered into partnership with another individual. Ballard's
investment in the partnership included equipment that cost $64,000 when it was purchased.
The equipment has a book value of $26,000 and a net agreed-on value of $32,000. In the
financial records of the partnership, this equipment and its accumulated depreciation should
be recorded at
A. $64,000 and $38,000, respectively.
B. $32,000 and $6,000, respectively.
C. $32,000 and $0, respectively.
D. $26,000 and $0, respectively.
60. When the owner of a sole proprietorship accepts a partner, the assets of the proprietorship
A. must be transferred to the partnership at the values reflected in the financial records of
the proprietorship.
B. must be converted to cash and used to pay any debts of the proprietorship, with excess
cash available for investment in the new partnership.
C. cannot be invested in the new partnership.
D. may be adjusted to reflect current values before being transferred to the partnership.
61. The general ledger of a partnership will
A. not contain a separate drawing account for each partner.
B. contain one capital account that reflects the total equity of all partners.
C. not contain a capital account or accounts.
D. contain a separate capital account for each partner.
19-13
A. If partners consider their cash withdrawals to be compensation for the work they do for the
partnership, the amounts of the withdrawals should be charged to Salaries Expense.
B. If there is no specific agreement on the division of partnership profits and losses, they are
divided equally among the partners.
C. If a salary is allowed to one partner, other partners also must receive a salary allowance.
D. None of these statements are correct.
63. The salary and interest allowances in a partnership profit-sharing agreement can best be
described as
A. expenses of the business that are deducted from revenue in the determination of net
income.
B. amounts on which each partner will not have to pay income tax.
C. a means of distributing net income in relation to the services provided and the capital
invested by each partner after which profits or losses are distributed as specified in the
partnership agreement.
D. a legal requirement in order for a partnership to be formed.
64. The entry to record the equal distribution of net income between two partners consists of a
debit to
A. Income Summary and a credit to each partner's capital account.
B. each partner's capital account and a credit to Cash.
C. Income Summary and a credit to each partner's drawing account.
D. each partner's capital account and a credit to Income Summary.
19-14
65. The entry to record a partner's salary allowance consists of a debit to
B. Salaries Expense and a credit to the partner's drawing account.
C. Income Summary and a credit to the partner's capital account.
D. Income Summary and a credit to the partner's drawing account.
66. Partnership net income of $33,000 is to be divided between two partners, Elan Chan and Roy
Anderson, according to the following arrangement: There will be salary allowances of $20,000
for Chan and $10,000 for Anderson, with the remainder divided equally. How much of the net
income will be distributed to Chan and Anderson, respectively?
A. $22,000 and $11,000
B. $21,500 and $11,500
C. $16,500 and $16,500
D. $21,000 and $12,000
67. Partnership net income of $135,000 is to be divided between two partners, Ross Trane and
Jane Winder, according to the following arrangement: There will be salary allowances of
$40,000 for Trane and $50,000 for Winder, with the remainder divided one-third and two-
thirds respectively per their partnership agreement. How much of the net income will be
distributed to Trane and Winder, respectively?
A. $45,000 and $90,000
B. $30,000 and 15,000
C. $15,000 and $30,000
D. $55,000 and $80,000
19-15
68. Partnership net income of $75,000 is to be divided between two partners, Bob Garcia and
Jerry McKernan, according to the following arrangement: There will be salary allowances of
$30,000 for Garcia and $20,000 for McKernan, with the remainder divided equally. How much
of the net income will be distributed to Garcia and McKernan, respectively?
A. $40,000 and $30,000
B. $42,500 and $32,500
C. $45,000 and $35,000
D. $67,500 and $57,500
69. Partnership net income of $66,000 is to be divided between two partners, Julia Hood and
Brian Duffy, according to the following arrangement: There will be salary allowances of
$40,000 for Hood and $20,000 for Duffy, with the remainder divided equally. How much of the
net income will be distributed to Hood and Duffy, respectively?
A. $33,000 and $33,000
B. $42,000 and $24,000
C. $43,000 and $23,000
D. $44,000 and $22,000
70. Partnership net income of $132,000 is to be divided between two partners, Jessie Folk and
Jessica Stephens, according to the following arrangement: There will be salary allowances of
$80,000 for Folk and $40,000 for Stephens, with the remainder divided equally. How much of
the net income will be distributed to Folk and Stephens, respectively?
A. $88,000 and $44,000
B. $86,000 and $46,000
C. $84,000 and $48,000
D. $66,000 and $66,000
19-16
71. Partnership net income of $40,000 is to be divided between two partners, Reese Row and
Andrew Young, according to the following arrangement: There will be salary allowances of
$25,000 for Row and $10,000 for Young, with the remainder divided 65:35. How much of the
net income will be distributed to Row and Young, respectively?
A. $27,500 and $12,500
B. $26,000 and $14,000
C. $28,250 and $11,750
D. $28,500 and $11,500
72. If no other method of dividing net income or net losses is specified in the partnership
agreement, it is divided
A. in relation to the partners' capital account balances.
B. in relation to the amount of time each partner devotes to the business.
C. in relation to the original investment by each partner.
D. equally.
73. The partners' salary and interest allowances are recorded in
A. expense accounts.
B. drawing accounts.
C. capital accounts.
D. liability accounts.
19-17
74. All of the following are included on the statement of partners' equities except
A. withdrawals.
B. additional investments.
C. salary allowances.
D. share of net income or net loss.
75. Danny Ortiz and Angela Hufford are partners, and each has a capital balance of $25,000. To
gain admission to the partnership, Derek Peters pays $15,000 directly to Ortiz for one-half of
his equity. After the admission of Peters, the total partners' equity in the records of the
partnership will be
A. $65,000.
B. $62,500.
C. $50,000.
D. $75,000.
76. Sam McGuire and Marcos Valle are partners, and each has a capital balance of $50,000. To
gain admission to the partnership, Scott Jordan pays $35,000 directly to Valle for one-half of
his equity. After the admission of Jordan, the total partners' equity in the records of the
partnership will be
A. $50,000.
B. $67,500.
C. $85,000.
D. $100,000.
19-18
77. Ben White and Lisa Caputi are partners, and each has a capital balance of $75,000. To gain
admission to the partnership, Tim Smith pays $50,000 directly to White for one-half of his
equity. After the admission of Smith, the total partners' equity in the records of the
partnership will be
A. $150,000.
B. $130,000.
C. $125,000.
D. $100,000.
78. Kara Johnson and Tyler Jones are partners, and each has a capital balance of $100,000. To
gain admission to the partnership, Raiden Nash pays $60,000 directly to Johnson for one-half
of her equity. After the admission of Nash, the total partners' equity in the records of the
partnership will be
A. $200,000.
B. $250,000.
C. $260,000.
D. $300,000.
79. Sam Sung and Mitchell Vaughn are partners, and each has a capital balance of $50,000. To
gain admission to the partnership, Amanda Scott pays $35,000 directly to Vaughn for one-half
of his equity. Scott's capital account will reflect an equity interest of:
A. $25,000.
B. $35,000.
C. $33,333.
D. $33,750.
19-19
80. Valerie Wone and Samantha Wall are partners and together have equity of $150,000 in the
partnership. Sarah wishes to become a partner with ¼ interest in the firm. If her investment
reflects the cash paid, how much will she contribute to the partnership?
A. $37,500.
B. $50,000.
C. $87,500.
D. $200,000.
81. Finch and Gerhardt are partners. Finch's capital balance is $100,000 and Gerhardt's is
$140,000. They agreed to share equally in profits and losses. Both partners agree to accept a
third investor, Harrison as a new partner with a 25% interest in the partnership. Harrison
intends to invest $90,000 in cash. The bonus that is granted to Finch and Gerhardt equals:
A. $3,750 each.
B. $5,000 each.
C. $10,000 each.
D. $15,500 each.
value of his or her interests, an entry is made to debit
A. Cash and credit the capital account of each existing partner.
B. Cash and credit the drawing account of each existing partner.
C. Cash and credit the Income Summary account for the excess.
D. each existing partner's capital account and credit Cash.
19-20
83. A partnership recorded the following journal entry:
This entry reflects:
A. Acceptance of a new partner who invests $50,000 and receives a $20,000 bonus.
B. Sale of a partner's equity interest who shares the excess received of $10,000 with the
other partners.
C. Additional investments by B & S Holmes.
D. Distribution of $10,000 each to B & S Holmes upon admission of new partner.
84. Winchester, Wesson & Smith are dissolving their partnership. Their agreement allocates
profits and losses 40:30:30 respectively. The ending capital balances are Winchester $45,000;
Wesson $25,000 and Smith $13,000. After all assets are liquidated and liabilities paid, there is
$12,000 in cash to be distributed. Smith's share of the excess cash is
A. $3,600.
B. $3,900.
C. $4,000.
D. $4,800.
19-21
A. If a new partner invests cash in an existing partnership and a bonus is given to a new
partner, the old partners' capital accounts increase.
B. When a new partner is admitted to an existing partnership upon an investment of cash, the
new partner's capital account may appropriately be debited for an amount other than the
amount of cash invested.
C. The partnership agreement should include steps to follow if a partner withdraws from the
partnership.
D. When a new partner is admitted to an existing partnership upon an investment of cash, the
new partner's capital account will always equal the amount of cash the new partner
invested.
Short Answer Questions
19-22
86. Janice Miller operates a sole proprietorship business that sells camping equipment. On
January 1, 2016, Miller has agreed to transfer her assets and liabilities to a partnership that
will operate The Camping Company. Miller will own a two-thirds interest in the capital of the
partnership. The agreed upon values of assets and liabilities to be transferred follow.
Accounts receivable of $50,000 (of which approximately $2,000 is uncollectible)

Merchandise inventory, $90,000
Furniture and fixtures, $60,000
Accounts payable, $32,000
Record the receipt of the assets and liabilities by the partnership on page 1 of a general
journal. Omit the description.
19-23
87. Mary Ann Mason operates a sole proprietorship business that sells craft supplies. On January
1, 2016, Mason has agreed to transfer her assets and liabilities to a partnership that will
operate The Craft Company. Mason will own a one-third interest in the capital of the
partnership. The agreed upon values of assets and liabilities to be transferred follow.
Accounts receivable of $2,000 (of which approximately $200 is uncollectible)

19-24
88. Blake Kredell owns and operates a retail business called Blake's Camera Shop. His
postclosing trial balance on December 31, 2016, is provided below. Blake plans to enter into a
partnership with Carmen Santos, effective January 1, 2017. Profits and losses will be shared
equally. Blake will transfer all assets and liabilities of his store to the partnership, after
revaluation. Santos will invest cash equal to Blake's investment after revaluation. The agreed
values are: Accounts Receivable (net), $7,500; Merchandise Inventory, $27,000; and Store
Equipment, $8,000.
The partnership will operate under the name Picture Perfect.
Required: 1) Record each partner's investment on page 1 of a general journal. Omit
descriptions. 2) Prepare a balance sheet for Picture Perfect just after the investments.
19-25
89. Patsy Garrison owns and operates a bakery called Patsy's Pastries. Her postclosing trial
balance on December 31, 2016, is provided below. Garrison plans to enter into a partnership
with Erika Noreen, effective January 1, 2017. Profits and losses will be shared equally.
Garrison will transfer all assets and liabilities of her store to the partnership, after
revaluation. Noreen will invest cash equal to Garrison's investment after revaluation. The
agreed values are: Accounts Receivable (net), $15,000; Merchandise Inventory, $54,000; and
Store Equipment, $16,000. The partnership will operate under the name Baker's Delight.
Record each partner's investment on page 1 of a general journal. Omit descriptions.
Prepare a balance sheet for Baker's Delight just after the investments.
19-26
90. Brian McCarthy owns and operates a business called Brian's Music Shop. His postclosing
trial balance on December 31, 2016, is provided below. Brian plans to enter into a partnership
with Emma Jones, effective January 1, 2017. Profits and losses will be shared equally. Brian
will transfer all assets and liabilities of his shop to the partnership, after revaluation. Emma
will invest cash equal to Brian's investment after revaluation. The agreed values are:
Accounts Receivable (net), $10,000; Merchandise Inventory, $35,000; and Store Equipment,
$15,000.
The partnership will operate under the name Beautiful Music.
Prepare a balance sheet for Beautiful Music just after the investments.
19-27
91. Net income for the Gifts Galore for the year ended December 31, 2016, was $18,000. The
partners, Chang and Jennings, share profits in the ratio of 70 and 30 percent, respectively.
1. How much of the net income will be allocated to Chang?

2. How much of the net income will be allocated to Jennings?
92. Net income for Customer Sales for the year ended December 31, 2016, was $32,000. The
partners, Johnson and Lindstrom, share profits in the ratio of 60 and 40 percent, respectively.
The balance in Johnson's capital account is $60,000. The balance in Lindstrom's capital
account is $60,000.
1. How much of the net income will be allocated to Johnson?

2. How much of the net income will be allocated to Lindstrom?
19-28
93. Wright and Beard are partners. Net income or loss is allocated on the basis of the balances of
the partners' capital accounts at the beginning of the year. On January 1, 2016, the balances
were Wright, $42,000, and Beard, $18,000. Net loss for the partnership for the year ended
December 31, 2016, was $9,000.
1. How much of the net loss will be allocated to Wright?

2. How much of the net loss will be allocated to Beard?
94. Martinez and Lopez are partners in business named Builders' Services. For the year ended
December 31, 2016, net income for Builders' Services was $60,000.
Net income or loss is allocated on the basis of the balances of the partners' capital accounts
at the beginning of the year. On January 1, 2016, the balances were Martinez, $48,000, and
Lopez, $24,000.
1. How much of the net income will be allocated to Martinez?

2. How much of the net income will be allocated to Lopez?
19-29
95. Escobar and Woods are partners who share profits and losses in the ratio of 60 and 40
percent, respectively. The partnership agreement provides that each will be paid a yearly
salary of $18,000. The salaries were paid to the partners during 2016 and were charged to the
partners' drawing accounts. The Income Summary account has a credit balance of $60,000
after revenue and expense accounts are closed at the end of the year.
1. What amount of net income or loss will be allocated to Escobar?

2. What amount of net income or loss will be allocated to Woods?
96. Madison and Hamilton are partners who share profits and losses equally. The partnership
agreement provides that Madison will be paid an annual salary of $40,000 and Hamilton will
be paid an annual salary of $30,000. The salaries were paid to the partners during 2016 and
were charged to the partners' drawing accounts. The Income Summary account has a credit
balance of $80,000 after revenue and expense accounts are closed at the end of the year.
1. What amount of net income or loss will be allocated to Madison?

2. What amount of net income or loss will be allocated to Hamilton?
19-30
97. Lenik and Olsen are partners who share profits and losses in the ratio of 60 and 40 percent,
respectively. The partnership agreement provides that each will be paid a yearly salary of
$19,000. The salaries were paid to the partners during 2016 and were charged to the
partners' drawing accounts. The Income Summary account has a debit balance of $4,000
1. What amount of net income or loss will be allocated to Lenik?

2. What amount of net income or loss will be allocated to Olsen?
98. Mavis and Roxanne are partners who share profits and losses equally. The partnership
agreement provides that Mavis will be paid an annual salary of $54,000 and Roxanne will be
paid an annual salary of $36,000. The salaries were paid to the partners during 2016 and
were charged to the partners' drawing accounts. The Income Summary account has a debit
1. What amount of net income or loss will be allocated to Mavis?

2. What amount of net income or loss will be allocated to Roxanne?
19-31
99. Norton and Morris are partners. The partnership agreement provides that Norton will receive
a salary of $26,000 and Morris will receive a salary of $20,000. These salaries were paid to
the partners during 2016 and were charged to the partners' drawing accounts. Both partners
also receive 10 percent on their capital balances at the beginning of the year. The balance of
any remaining profits or losses is divided equally. The beginning capital account balances for
2016 were Norton, $100,000, and Morris, $80,000. At the end of the year, the partnership has
a net income of $60,000.
1. What amount of net income or loss will be allocated to Norton?

2. What amount of net income or loss will be allocated to Morris?
19-32
100.Norma and Marilyn are partners. The partnership agreement provides that Norma will receive
a salary of $30,000 and Marilyn will receive a salary of $50,000. These salaries were paid to
the partners during 2016 and were charged to the partners' drawing accounts. Both partners
also receive 8 percent on their capital balances at the beginning of the year. The balance of
any remaining profits or losses is divided equally. The beginning capital account balances for
2016 were Norma, $80,000, and Marilyn, $40,000. At the end of the year, the partnership has
a net income of $90,000.
1. What amount of net income or loss will be allocated to Norma?

2. What amount of net income or loss will be allocated to Marilyn?
19-33
101.Walters and Kim are partners. The partnership agreement provides for salary allowances of
$26,000 for Walters and $22,000 for Kim and for interest of 10 percent on each partner's
invested capital at the beginning of the year. The balance of any remaining profits or losses
is to be divided 40 percent to Walters and 60 percent to Kim. On January 1, 2016, the capital
account balances were Walters, $75,000, and Kim, $95,000. Net income for the year was
$72,000.
1. On page 10 of a general journal, record the following entries on December 31, 2016. Omit
descriptions.
A) Record the salary allowances for the year.

B) Record the interest allowances for the year.
C) Record the division of the balance of net income.
D) Close the drawing accounts into the capital accounts. Assume that the partners have
withdrawn the full amount of their salaries.
2. Prepare a schedule showing the division of net income to the partners as it would appear
on the income statement for 2016.
19-34
102.Bryce and Kendall are partners. The partnership agreement provides for salary allowances of
$52,000 for Bryce and $44,000 for Kendall and for interest of 10 percent on each partner's
invested capital at the beginning of the year. The balance of any remaining profits or losses
is to be divided 40 percent to Bryce and 60 percent to Kendall. On January 1, 2016, the
capital account balances were Bryce, $150,000, and Kendall, $190,000. Net income for the
year was $144,000.
1. On page 22 of a general journal, record the following entries on December 31, 2016. Omit
descriptions.

2. Prepare a schedule showing the division of net income to the partners as it would appear
on the income statement for 2016.
19-35
103.Nancy Conradt and Chris Russell are partners who share profits and losses in the ratio of
60:40, respectively. On December 31, 2016, they decide that Russell will sell one-half of his
interest to Pam Ortega. At that time, the balances of the capital accounts are $500,000 for
Conradt and $700,000 for Russell. The partners agree that before the new partner is
admitted, certain assets should be revalued. These assets include merchandise inventory
carried at $411,200 revalued at $403,600, and a building with a book value of $260,000
revalued at $450,000. On page 10 of a general journal, record the revaluation entries. Omit
descriptions. Then, determine the capital balances of the two existing partners after the
revaluation is made.
19-36
104.Brian Colt and Karen Randall are partners who share profits and losses in the ratio of 70:30,
respectively. On December 31, 2016, they decide that Randall will sell one-half of her interest
to Jane Wu. At that time, the balances of the capital accounts are $70,000 for Colt and
$30,000 for Randall. The partners agree that before the new partner is admitted, certain
assets should be revalued. These assets include merchandise inventory carried at $11,000
revalued at $10,000, and a building with a book value of $60,000 revalued at $70,000. On
page 10 of a general journal, record the revaluation entries. Omit descriptions. Then,
determine the capital balances of the two existing partners after the revaluation is made.
19-37
105.Peter Nguyen and Loren Washington are partners who share profits and losses in the ratio of
60:40, respectively. On December 31, 2016, they decide that Washington will sell one-half of
her interest to Grace Dolores. At that time, the balances of the capital accounts are $75,000
for Nguyen and $45,000 for Washington. The partners agree that before the new partner is
carried at $42,000 revalued at $48,000, and a building with a book value of $100,000 revalued
at $120,000. On page 10 of a general journal, record the revaluation entries. Omit
106.Catherine Vollick and Danica Hubbard are partners. To expand the expertise of their
business, they have agreed to admit Kyle Simon to the partnership on January 1, 2016. The
capital account balances on January 1, 2016, after revaluation of assets, are Vollick, $80,000,
and Hubbard, $60,000. Net income or net loss is shared equally. On page 8 of a general
journal, record the admission of Simon to the partnership on January 1, 2016, assuming that
Vollick sells one-half of her interest to Simon for $50,000 in cash. Omit the description.
19-38
107.Kaitlyn Fields and Tyler Unger are partners. To expand the expertise of their business, they
have agreed to admit Serena Singh to the partnership on January 1, 2016. The capital
account balances on January 1, 2016, after revaluation of assets, are Fields, $80,000, and
Unger, $60,000. Net income or net loss is shared equally. On page 7 of a general journal,
record the admission of Singh to the partnership on January 1, 2016, assuming that Fields
sells one-half of her interest to Singh for $39,000 in cash. Omit the description.
108.Roy Reynolds and Mike Truesdale are partners. To expand the expertise of their business,
they have agreed to admit Jennie Fellows to the partnership on January 1, 2016. The capital
account balances on January 1, 2016, after revaluation of assets, are Reynolds, $80,000, and
Truesdale, $60,000. Net income or net loss is shared equally. On page 20 of a general journal,
record the admission of Fellows to the partnership on January 1, 2016, assuming that Fellows
invests $46,000 for 20 percent interest in the business. Omit the descriptions.
19-39
109.Karen Schuler and Mary Ryan are partners. To expand the expertise of their business, they
have agreed to admit Samuel Wing to the partnership on January 1, 2016. The capital
account balances on January 1, 2016, after revaluation of assets, are Schuler, $80,000, and
Ryan, $60,000. Net income or net loss is shared equally. On page 10 of a general journal,
record the admission of Wing to the partnership on January 1, 2016, assuming that Wing
invests $58,000 for one-third interest in the business. Omit the descriptions.
110.Spalding, Dane, and Manson are partners, sharing profits and losses in the ratio of 30, 40,
and 30 percent respectively. Their partnership agreement provides that if one of them
withdraws from the partnership, the assets and liabilities are to be revalued, the gain or loss
allocated to the partners, and the retiring partner paid the balance of his account. Manson
withdraws from the partnership on December 31, 2016. The capital account balances before
recording revaluation are Spalding, $230,000; Dane, $250,000; and Manson, $220,000. The
effect of the revaluation is to increase Merchandise Inventory by $21,000 and the Building
account balance by $41,000. How much cash will be paid to Manson?
19-40
111.Garvey, Lopes, and Russell are partners, sharing profits and losses in the ratio of 35, 35, and
30 percent respectively. Their partnership agreement provides that if one of them withdraws
from the partnership, the assets and liabilities are to be revalued, the gain or loss allocated
to the partners, and the retiring partner paid the balance of his account. Garvey withdraws
from the partnership on December 31, 2016. The capital account balances before recording
revaluation are Garvey, $280,000; Lopes, $230,000; and Russell, $290,000. The effect of the
revaluation is to increase Merchandise Inventory by $44,000 and the Building account
balance by $76,000. How much cash will be paid to Garvey?
19-41
112.Abbott, Casper, and Costello are partners, sharing profits and losses in the ratio of 30, 30,
withdraws from the partnership, the assets and liabilities are to be revalued, the gain or loss
allocated to the partners, and the retiring partner paid the balance of his account. Costello
withdraws from the partnership on December 31, 2016. The capital account balances before
recording revaluation are Abbott, $130,000; Casper $150,000; and Costello, $120,000. The
effect of the revaluation is to increase Merchandise Inventory by $5,000 and the Building
account balance by $20,000. How much cash will be paid to Costello?
Matching Questions
19-42
113.Match the accounting terms with the description.
Another term for partnership

1. Partnership agreement ____
2. Partnership The legal term for termination of a
agreement partnership ____
The amount of net income or net loss
3. Mutual agency allocated to each partner ____
4. Limited A member of a partnership who has
partnership unlimited liability ____
A member of a partnership whose
5. Statement of liability is limited to his or her investment
partners' equities in the partnership ____
A partnership having one or more
6. Limited partner limited partners ____
Termination of a business by
distributing all assets and discontinuing
7. General partner the business ____
8. Articles of An informational entry in the general
partnership journal ____
The characteristic of a partnership by
which each partner is empowered to act
as an agent for the partnership, binding
9. Unlimited liability the firm by his or her acts ____
An association of two or more persons
who carry on, as co-owners, a business
10. Liquidation for profit ____
A legal contract forming a partnership
11. Memorandum and specifying certain details of
entry operation ____
A financial statement prepared to
12. Dissolution summarize the changes in partners' ____
19-43
capital accounts during an accounting
period
The implication that a creditor can look
to all partners' personal assets as well as
13. Distributive the assets of the partnership for payment
share of the firm's debts ____
114.Identify and discuss the key characteristics of partnerships and partner agreements.
115.Explain the major advantages and disadvantages of the partnership form.
19-44
116.Antonio Bandala wishes to retire and sell his partnership interest valued at $170,000 to the
remaining partners. Prepare the journal entry to record the withdrawal from the partnership.
117.Antonio Bandala wishes to sell half of his partnership interest for $70,000 to Phillips. His
capital balance is $120,000. Prepare the journal entry to record this transaction in the
19-45
Chapter 19 Accounting for Partnerships Answer Key
True / False Questions
1. A partnership has a limited life. It ends with the death or withdrawal of a partner.
TRUE
AACSB: Analytic
AICPA BB: Legal
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 19-01 Explain the major advantages and disadvantages of a partnership.
Topic: Forming a Partnership
2. Some partners, known as limited partners, may not be personally liable for the debts of the
partnership.
TRUE
AACSB: Analytic
AICPA BB: Legal
Blooms: Remember
Difficulty: 1 Easy
19-46
3. Unlike a corporation, a partnership does not pay income tax.
TRUE
AACSB: Analytic
AICPA BB: Legal
Blooms: Remember
Difficulty: 1 Easy
4. A pool of talented professionals can form as a Not-for-Profit partnership and provide

needed community services.
FALSE
AACSB: Analytic
AICPA BB: Legal
Blooms: Remember
Difficulty: 1 Easy
5. Limited partners are only liable for their investment in the partnership and are therefore
prohibited from having their names in the partnership's name.
TRUE
AACSB: Analytic
AICPA BB: Legal
Blooms: Remember
Difficulty: 1 Easy
19-47
6. Each partner is empowered to act as an agent for the partnership creating binding
agreements no matter what the agreement concerns.
FALSE
AACSB: Analytic
AICPA BB: Legal
Blooms: Remember
Difficulty: 1 Easy
7. A legal partnership does not exist unless there is a written partnership agreement.
FALSE
AACSB: Analytic
AICPA BB: Legal
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 19-02 State the important provisions that should be included in every partnership agreement.
8. The Articles of Organization are the legal agreement of the partnership that specifies the
names of partners, the name, location and nature of the partnership business; the starting
date and life of the partnership as well as the rights and duties of each partner.
FALSE
The Articles of Partnership (Partnership Agreement) specify the necessary information.
AACSB: Analytic
AICPA BB: Legal
Blooms: Remember
19-48
Difficulty: 1 Easy
9. Establishing a fiscal year and specifying the accounting method to be used in the
partnership are important elements of the partnership agreement.
TRUE
AACSB: Analytic
AICPA BB: Legal
Blooms: Remember
Difficulty: 1 Easy
10. The cost of merchandise withdrawn by a partner for personal use is recorded as a debit to
the partner's drawing account and a credit to the Purchases account.
TRUE
AACSB: Analytic
AICPA FN: Reporting
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 19-03 Account for the formation of a partnership.
11. The assets of a sole proprietorship are revalued before they are assumed by a
partnership.
TRUE
AACSB: Analytic
AICPA FN: Measurement
19-49
Blooms: Remember
Difficulty: 1 Easy
12. Investments by a partner are credited to that partner's capital account.
TRUE
AACSB: Analytic
AICPA FN: Reporting
Blooms: Remember
Difficulty: 1 Easy
13. Family partnerships enable family members to pool funds for investment purposes and are
designed to minimize tax obligations on the transfer of property, business interests and
investments.
TRUE
AACSB: Analytic
AICPA BB: Legal
Blooms: Remember
Difficulty: 1 Easy
14. The journal entry to record the division of a partnership profit consists of a debit to each
partner's capital account and a credit to Cash.
FALSE
AACSB: Analytic
AICPA FN: Reporting
19-50
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 19-04 Compute and record the division of net income or net loss between partners in accordance with
the partnership agreement.
Topic: Allocating Income or Loss
15. The separate entity assumption requires personal expenses paid by the business be
charged to a partner's drawing account.
TRUE
AACSB: Analytic
AICPA FN: Reporting
Blooms: Remember
Difficulty: 1 Easy
16. When a partner makes a cash withdrawal that is intended to be a permanent reduction in
his/her investment, the withdrawal account is debited.
FALSE
AACSB: Analytic
AICPA FN: Reporting
Blooms: Remember
Difficulty: 1 Easy
19-51
17. Salary and interest allowances for partners are treated as expenses of the firm and are
used in the determination of net income.
FALSE
AACSB: Analytic
AICPA FN: Reporting
Blooms: Remember
Difficulty: 1 Easy
18. At the end of each fiscal year, cash is distributed to each partner in accordance with the
profit distribution included in the partnership agreement and is reported on the partner's
individual tax return.
FALSE
AACSB: Analytic
AICPA FN: Reporting
Blooms: Remember
Difficulty: 1 Easy
19. Salary and interest allowances are considered in distributing net income to partners but
not in distributing a net loss.
FALSE
AACSB: Analytic
AICPA BB: Legal
Blooms: Remember
19-52
Difficulty: 1 Easy
20. The entry to record the salary and interest allowance on capital invested but not
withdrawn from the partnership requires a debit to the Income Summary account and a
credit to the partner's capital account.
TRUE
AACSB: Analytic
AICPA FN: Reporting
Blooms: Understand
21. The entry to close a partner's drawing account at the end of a fiscal period includes a
debit to the partner's drawing account.
FALSE
AACSB: Analytic
AICPA FN: Reporting
Blooms: Remember
Difficulty: 1 Easy
19-53
22. It is customary for a partnership's income statement to show the division of net income or
loss for the year between the partners.
TRUE
AACSB: Analytic
AICPA FN: Reporting
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 19-05 Prepare a statement of partners' equities.
23. A gain or loss on revaluation of assets should be allocated to the partners according to the
balances of their capital accounts.
FALSE
AACSB: Analytic
AICPA FN: Reporting
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 19-06 Account for the revaluation of assets and liabilities prior to the dissolution of a partnership.
Topic: Partnership Changes
24. A dissolution has little impact on the business activities of the partnership whereas a
liquidation occurs when the business ceases to exist.
TRUE
AACSB: Analytic
AICPA BB: Legal
Blooms: Remember
Difficulty: 1 Easy
19-54
25. The dissolution of a partnership and the formation of a new partnership may have no
noticeable effect on the continuing operations of the business.
TRUE
AACSB: Analytic
AICPA BB: Legal
Blooms: Understand
26. Gains on the revaluation of assets and liabilities upon the dissolution of a partnership are
taxable to each partner.
FALSE
AACSB: Analytic
AICPA FN: Reporting
Blooms: Understand
27. James Cavanaugh, proprietor has agreed to take on a partner. His net assets are market
valued at $105,000 with book assets having a net value of $95,000. In the newly created
partnership, Cavanaugh's capital will reflect the $95,000 book value of existing assets
contributed to the new organization.
FALSE
AACSB: Analytic
AICPA FN: Reporting
19-55
Blooms: Apply
Learning Objective: 19-08 Account for the investment of a new partner in an existing partnership.
28. If a new partner purchases an interest in a partnership firm directly from an existing
partner, the Cash account is debited and the new partner's capital account is credited.
FALSE
AACSB: Analytic
AICPA FN: Reporting
Blooms: Understand
Learning Objective: 19-07 Account for the sale of a partnership interest.
29. The partners of Jones & Wesson agreed that Jones can sell his $50,000 investment in the
firm to Smith. Smith pays Jones $60,000. The entry to record the transfer of capital to
Smith will include a credit to Smith, Capital for $60,000.
FALSE
AACSB: Analytic
AICPA FN: Reporting
Blooms: Apply
19-56
30. Upon withdrawal, the withdrawing partner(s) may receive less than their capital account
balances.
TRUE
AACSB: Analytic
AICPA BB: Legal
Blooms: Understand
Learning Objective: 19-09 Account for the withdrawal of a partner from a partnership.
31. If the withdrawing partner receives more cash than their capital account balances, the
excess is debited to the capital accounts of the remaining partners according to their
income and loss ratios specified in the partnership agreement.
TRUE
AACSB: Analytic
AICPA FN: Reporting
Blooms: Understand
Fill in the Blank Questions
19-57
32. The characteristic of a partnership that means that any partner can make valid contracts
for the partnership is known as ___________________.
mutual agency
AACSB: Analytic
AICPA BB: Legal
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 19-10 Define the accounting terms new to this chapter.
33. An association of two or more persons to carry on, as co-owners, a business for profit is
called a(n) ___________________.
partnership
AACSB: Analytic
AICPA BB: Legal
Blooms: Remember
Difficulty: 1 Easy
34. A partnership has a(n) ____________________ life because it ends with the death or
withdrawal of any partner.
limited
AACSB: Analytic
AICPA BB: Legal
Blooms: Remember
Difficulty: 1 Easy
19-58
35. Each general partner has ____________________ liability for the debts of a partnership.
unlimited
AACSB: Analytic
AICPA BB: Legal
Blooms: Remember
Difficulty: 1 Easy
36. The partnership ____________________ is a written contract that specifies the rights and
responsibilities of the partners.
agreement
AACSB: Analytic
AICPA BB: Legal
Blooms: Remember
Difficulty: 1 Easy
37. If plant and equipment are transferred from a sole proprietorship to a partnership, the
Accumulated Depreciation accounts start with ____________________ balances in the
zero; no
AACSB: Analytic
AICPA FN: Reporting
Blooms: Understand
19-59
38. Withdrawals of assets from a partnership that are intended to permanently reduce the
invested capital are recorded as debits to the partners' ____________________ accounts.
capital
AACSB: Analytic
AICPA FN: Reporting
Blooms: Understand
39. Amounts withdrawn by partners to pay personal living expenses are recorded in their
____________________ accounts.
drawing
AACSB: Analytic
AICPA FN: Reporting
Blooms: Remember
Difficulty: 1 Easy
40. The entry to record a partner's interest allowance includes a debit to the
____________________ account.
Income Summary
AACSB: Analytic
AICPA FN: Reporting
Blooms: Understand
19-60
41. When dividing partnership net income, the consideration given to the amount of time a
partner devotes to the business is called a salary ___________________.
allowance
AACSB: Analytic
AICPA BB: Legal
Blooms: Remember
Difficulty: 1 Easy
42. If a partnership's salary and interest allowances are in excess of the net income, the entry
to close Income Summary after the allowances are recorded will include a(n)
credit
AACSB: Analytic
AICPA FN: Reporting
Blooms: Understand
43. If a partnership's net income is in excess of the salary and interest allowances, the entry
to close Income Summary after the allowances are recorded will include a(n)
debit
AACSB: Analytic
AICPA FN: Reporting
Blooms: Remember
Difficulty: 1 Easy
19-61
44. The statement of partners' equities summarizes the changes in the partners'
_________________ accounts in an accounting period.
capital
AACSB: Analytic
AICPA BB: Legal
Blooms: Remember
Difficulty: 1 Easy
45. A partnership ____________________ occurs when the partnership's assets are sold, debts
are paid off, and the remaining cash is distributed to the partners.
liquidation
AACSB: Analytic
AICPA BB: Legal
Blooms: Remember
Difficulty: 1 Easy
value of his or her interest, the old partners are said to receive a(n) ___________________.
bonus
AACSB: Analytic
AICPA BB: Legal
Blooms: Remember
Difficulty: 1 Easy
19-62
47. The financial statement prepared to summarize the changes in partner's capital accounts
is the __________________________.
Statement of Partners' Equities
AACSB: Communication
AICPA FN: Reporting
Blooms: Remember
Difficulty: 1 Easy
48. The financial statement that shows the division of profits and losses among partners is
the _______________.
Income Statement
AICPA FN: Reporting
Blooms: Remember
Difficulty: 1 Easy
Multiple Choice Questions
19-63
49. Which of the following statements is not correct?
A. Each general partner has unlimited liability for the debts of a partnership.
B. Federal income tax is levied on the net income of a partnership and on the earnings of
the individual partners when the net income is distributed to them.
C. Any general partner can make valid contracts for a partnership and can otherwise
conduct its affairs.
D. When a partner dies or is incapacitated, the partnership is dissolved.
AACSB: Analytic
AICPA FN: Decision Making
Blooms: Understand
50. Federal income tax is levied on
A. a partnership based on its total net income when earned.
B. the partners for their individual shares of the reported partnership income.
C. the partners only when they withdraw earnings from the partnership for personal use.
D. the partnership at the end of the fiscal period.
AACSB: Analytic
AICPA BB: Legal
Blooms: Understand
19-64
51. Which of the following is not a characteristic of a partnership?
A. Each general partner has unlimited liability for the debts of the partnership.
B. If one partner dies or leaves the partnership, the existing partnership is terminated.
C. The partnership income is subject to a federal income tax that is levied on the business
but not on the partners.
D. The existing partnership agreement is dissolved and a new agreement is formed when
a new partner joins the partnership.
AACSB: Analytic
Blooms: Understand
19-65
52. Smith contributed $15,000 cash while J. West contributed $20,000 cash and office
equipment costing $14,000 currently valued at $12,000 to a new partnership. The journal
entry to record the partnership investments of Smith and West is
A.
B.
C.
D.
AACSB: Analytic
AICPA FN: Reporting
Blooms: Apply
19-66
53. On November 1, Jackson and Kiln formed a partnership with Jackson contributing land
valued at $100,000 and a building valued at $125,000. Kiln contributed $55,000 in cash.
The partnership assumed the mortgage on Jackson's property of $85,000. Profits and
losses are to be shared equally. What are the balances of the partner's capital accounts
after recording these transactions?
A. Jackson: $97,500 and Kiln:$97,500
B. Jackson: $55,000 and Kiln: $140,000
C. Jackson: $140,000 and Kiln: $55,000
D. Jackson: $225,000 and Kiln: $55,000
Jackson Capital = $100,000 + $125,000 - $85,000 = $140,000
AACSB: Analytic
AICPA FN: Reporting
Blooms: Apply
54. The amount that each partner withdraws from a partnership
A. cannot exceed the net income reported by the partnership.
B. should be specified in the partnership agreement.
C. is the base on which federal income taxes are levied on the partnership income.
D. is usually determined by the amount of the net income.
AACSB: Analytic
AICPA BB: Legal
Blooms: Remember
Difficulty: 1 Easy
19-67
A. The general ledger of a partnership will include a single capital account, whose balance
represents the combined equity of all the partners.
B. Past-due accounts receivable should not be transferred from the financial records of a
sole proprietorship to a newly formed partnership.
C. The financial records of a new partnership are opened with a memorandum entry in the
general journal.
D. A new partner must purchase the partnership interest of another partner.
AACSB: Analytic
Blooms: Understand
56. The entry to record the investment of cash in a partnership by one partner would consist
of a debit to
B. Cash and a credit to an account called Partners' Equities.
C. Cash and a credit to the partner's capital account.
D. Cash and a credit to the partner's drawing account.
AACSB: Analytic
AICPA FN: Reporting
Blooms: Apply
19-68
57. Ryan Fuller, a sole proprietor, entered into partnership with another individual. Fuller's
investment in the partnership included equipment that cost $32,000 when it was
purchased. The equipment has a book value of $13,000 and a net agreed-on value of
$16,000. In the financial records of the partnership, this equipment and its accumulated
depreciation should be recorded at
A. $16,000 and $0, respectively.
B. $13,000 and $0, respectively.
C. $32,000 and $19,000, respectively.
D. $16,000 and $3,000, respectively.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Reporting
Blooms: Apply
Difficulty: 3 Hard
58. When a partner submits personal living expenses for company reimbursement and the
expense is reflected as a reduction of period profits, the company has violated the
A. Conservatism principle.
B. Going concern assumption.
C. Separate entity assumption.
D. Full disclosure principle.
AACSB: Analytic
19-69
Blooms: Evaluate
Difficulty: 3 Hard
59. Robert Ballard, a sole proprietor, entered into partnership with another individual. Ballard's
investment in the partnership included equipment that cost $64,000 when it was
purchased. The equipment has a book value of $26,000 and a net agreed-on value of
$32,000. In the financial records of the partnership, this equipment and its accumulated
depreciation should be recorded at
A. $64,000 and $38,000, respectively.
B. $32,000 and $6,000, respectively.
C. $32,000 and $0, respectively.
D. $26,000 and $0, respectively.
AACSB: Analytic
AICPA FN: Reporting
Blooms: Apply
Difficulty: 3 Hard
19-70
60. When the owner of a sole proprietorship accepts a partner, the assets of the
proprietorship
A. must be transferred to the partnership at the values reflected in the financial records
of the proprietorship.
B. must be converted to cash and used to pay any debts of the proprietorship, with excess
cash available for investment in the new partnership.
C. cannot be invested in the new partnership.
D. may be adjusted to reflect current values before being transferred to the partnership.
AACSB: Analytic
AICPA BB: Legal
Blooms: Understand
61. The general ledger of a partnership will
A. not contain a separate drawing account for each partner.
B. contain one capital account that reflects the total equity of all partners.
C. not contain a capital account or accounts.
D. contain a separate capital account for each partner.
AACSB: Analytic
AICPA BB: Legal
Blooms: Understand
19-71
A. If partners consider their cash withdrawals to be compensation for the work they do for
the partnership, the amounts of the withdrawals should be charged to Salaries
Expense.
B. If there is no specific agreement on the division of partnership profits and losses, they
are divided equally among the partners.
C. If a salary is allowed to one partner, other partners also must receive a salary
allowance.
D. None of these statements are correct.
AACSB: Analytic
Blooms: Understand
63. The salary and interest allowances in a partnership profit-sharing agreement can best be
described as
A. expenses of the business that are deducted from revenue in the determination of net
income.
B. amounts on which each partner will not have to pay income tax.
C. a means of distributing net income in relation to the services provided and the capital
invested by each partner after which profits or losses are distributed as specified in the
partnership agreement.
D. a legal requirement in order for a partnership to be formed.
AACSB: Analytic
AICPA BB: Legal
19-72
Blooms: Understand
64. The entry to record the equal distribution of net income between two partners consists of
a debit to
A. Income Summary and a credit to each partner's capital account.
B. each partner's capital account and a credit to Cash.
C. Income Summary and a credit to each partner's drawing account.
D. each partner's capital account and a credit to Income Summary.
AACSB: Analytic
AICPA FN: Reporting
Blooms: Understand
65. The entry to record a partner's salary allowance consists of a debit to
B. Salaries Expense and a credit to the partner's drawing account.
C. Income Summary and a credit to the partner's capital account.
D. Income Summary and a credit to the partner's drawing account.
AACSB: Analytic
AICPA FN: Reporting
Blooms: Understand
19-73
66. Partnership net income of $33,000 is to be divided between two partners, Elan Chan and
Roy Anderson, according to the following arrangement: There will be salary allowances of
$20,000 for Chan and $10,000 for Anderson, with the remainder divided equally. How
much of the net income will be distributed to Chan and Anderson, respectively?
A. $22,000 and $11,000
B. $21,500 and $11,500
C. $16,500 and $16,500
D. $21,000 and $12,000
AACSB: Analytic
AICPA FN: Reporting
Blooms: Apply
Difficulty: 3 Hard
19-74
67. Partnership net income of $135,000 is to be divided between two partners, Ross Trane and
Jane Winder, according to the following arrangement: There will be salary allowances of
$40,000 for Trane and $50,000 for Winder, with the remainder divided one-third and two-
thirds respectively per their partnership agreement. How much of the net income will be
distributed to Trane and Winder, respectively?
A. $45,000 and $90,000
B. $30,000 and 15,000
C. $15,000 and $30,000
D. $55,000 and $80,000
AACSB: Analytic
AICPA FN: Reporting
Blooms: Apply
19-75
68. Partnership net income of $75,000 is to be divided between two partners, Bob Garcia and
Jerry McKernan, according to the following arrangement: There will be salary allowances
of $30,000 for Garcia and $20,000 for McKernan, with the remainder divided equally. How
much of the net income will be distributed to Garcia and McKernan, respectively?
A. $40,000 and $30,000
B. $42,500 and $32,500
C. $45,000 and $35,000
D. $67,500 and $57,500
AACSB: Analytic
AICPA FN: Reporting
Blooms: Apply
Difficulty: 3 Hard
19-76
69. Partnership net income of $66,000 is to be divided between two partners, Julia Hood and
Brian Duffy, according to the following arrangement: There will be salary allowances of
$40,000 for Hood and $20,000 for Duffy, with the remainder divided equally. How much of
the net income will be distributed to Hood and Duffy, respectively?
A. $33,000 and $33,000
B. $42,000 and $24,000
C. $43,000 and $23,000
D. $44,000 and $22,000
AACSB: Analytic
AICPA FN: Reporting
Blooms: Apply
Difficulty: 3 Hard
19-77
70. Partnership net income of $132,000 is to be divided between two partners, Jessie Folk and
Jessica Stephens, according to the following arrangement: There will be salary allowances
of $80,000 for Folk and $40,000 for Stephens, with the remainder divided equally. How
much of the net income will be distributed to Folk and Stephens, respectively?
A. $88,000 and $44,000
B. $86,000 and $46,000
C. $84,000 and $48,000
D. $66,000 and $66,000
AACSB: Analytic
AICPA FN: Reporting
Blooms: Apply
Difficulty: 3 Hard
19-78
71. Partnership net income of $40,000 is to be divided between two partners, Reese Row and
Andrew Young, according to the following arrangement: There will be salary allowances of
$25,000 for Row and $10,000 for Young, with the remainder divided 65:35. How much of
the net income will be distributed to Row and Young, respectively?
A. $27,500 and $12,500
B. $26,000 and $14,000
C. $28,250 and $11,750
D. $28,500 and $11,500
AACSB: Analytic
AICPA FN: Reporting
Blooms: Apply
Difficulty: 3 Hard
72. If no other method of dividing net income or net losses is specified in the partnership
agreement, it is divided
A. in relation to the partners' capital account balances.
B. in relation to the amount of time each partner devotes to the business.
C. in relation to the original investment by each partner.
D. equally.
AACSB: Analytic
AICPA BB: Legal
19-79
Blooms: Understand
73. The partners' salary and interest allowances are recorded in
A. expense accounts.
B. drawing accounts.
C. capital accounts.
D. liability accounts.
AACSB: Analytic
AICPA BB: Legal
Blooms: Understand
74. All of the following are included on the statement of partners' equities except
A. withdrawals.
B. additional investments.
C. salary allowances.
D. share of net income or net loss.
AACSB: Analytic
AICPA FN: Reporting
Blooms: Understand
19-80
75. Danny Ortiz and Angela Hufford are partners, and each has a capital balance of $25,000.
To gain admission to the partnership, Derek Peters pays $15,000 directly to Ortiz for one-
half of his equity. After the admission of Peters, the total partners' equity in the records of
the partnership will be
A. $65,000.
B. $62,500.
C. $50,000.
D. $75,000.
AACSB: Analytic
AICPA FN: Reporting
Blooms: Apply
Difficulty: 3 Hard
76. Sam McGuire and Marcos Valle are partners, and each has a capital balance of $50,000.
To gain admission to the partnership, Scott Jordan pays $35,000 directly to Valle for one-
half of his equity. After the admission of Jordan, the total partners' equity in the records of
A. $50,000.
B. $67,500.
C. $85,000.
D. $100,000.
AACSB: Analytic
19-81
AICPA FN: Reporting
Blooms: Apply
Difficulty: 3 Hard
77. Ben White and Lisa Caputi are partners, and each has a capital balance of $75,000. To
gain admission to the partnership, Tim Smith pays $50,000 directly to White for one-half of
his equity. After the admission of Smith, the total partners' equity in the records of the
partnership will be
A. $150,000.
B. $130,000.
C. $125,000.
D. $100,000.
AACSB: Analytic
AICPA FN: Reporting
Blooms: Apply
Difficulty: 3 Hard
19-82
78. Kara Johnson and Tyler Jones are partners, and each has a capital balance of $100,000. To
gain admission to the partnership, Raiden Nash pays $60,000 directly to Johnson for one-
half of her equity. After the admission of Nash, the total partners' equity in the records of
A. $200,000.
B. $250,000.
C. $260,000.
D. $300,000.
AACSB: Analytic
AICPA FN: Reporting
Blooms: Apply
Difficulty: 3 Hard
79. Sam Sung and Mitchell Vaughn are partners, and each has a capital balance of $50,000.
To gain admission to the partnership, Amanda Scott pays $35,000 directly to Vaughn for
one-half of his equity. Scott's capital account will reflect an equity interest of:
A. $25,000.
B. $35,000.
C. $33,333.
D. $33,750.
AACSB: Analytic
AICPA FN: Reporting
19-83
Blooms: Apply
Difficulty: 3 Hard
80. Valerie Wone and Samantha Wall are partners and together have equity of $150,000 in the
partnership. Sarah wishes to become a partner with ¼ interest in the firm. If her
investment reflects the cash paid, how much will she contribute to the partnership?
A. $37,500.
B. $50,000.
C. $87,500.
D. $200,000.
$150,000/(3/4) = $200,000 total capital needed for current partners to have ¾ interest
$200,000 - $150,000 = $50,000 contribution for a ¼ interest
AACSB: Analytic
AICPA FN: Reporting
Blooms: Apply
Difficulty: 3 Hard
19-84
81. Finch and Gerhardt are partners. Finch's capital balance is $100,000 and Gerhardt's is
$140,000. They agreed to share equally in profits and losses. Both partners agree to
accept a third investor, Harrison as a new partner with a 25% interest in the partnership.
Harrison intends to invest $90,000 in cash. The bonus that is granted to Finch and
Gerhardt equals:
A. $3,750 each.
B. $5,000 each.
C. $10,000 each.
D. $15,500 each.
AACSB: Analytic
AICPA FN: Reporting
Blooms: Apply
Difficulty: 3 Hard
19-85
value of his or her interests, an entry is made to debit
A. Cash and credit the capital account of each existing partner.
B. Cash and credit the drawing account of each existing partner.
C. Cash and credit the Income Summary account for the excess.
D. each existing partner's capital account and credit Cash.
AACSB: Analytic
AICPA FN: Reporting
Blooms: Understand
83. A partnership recorded the following journal entry:
This entry reflects:
A. Acceptance of a new partner who invests $50,000 and receives a $20,000 bonus.
B. Sale of a partner's equity interest who shares the excess received of $10,000 with the
other partners.
C. Additional investments by B & S Holmes.
D. Distribution of $10,000 each to B & S Holmes upon admission of new partner.
AACSB: Analytic
Blooms: Analyze
Difficulty: 3 Hard
19-86
84. Winchester, Wesson & Smith are dissolving their partnership. Their agreement allocates
profits and losses 40:30:30 respectively. The ending capital balances are Winchester
$45,000; Wesson $25,000 and Smith $13,000. After all assets are liquidated and liabilities
paid, there is $12,000 in cash to be distributed. Smith's share of the excess cash is
A. $3,600.
B. $3,900.
C. $4,000.
D. $4,800.
$12,000 × .30 = $3,600
AACSB: Analytic
AICPA FN: Reporting
Blooms: Apply
Difficulty: 3 Hard
19-87
A. If a new partner invests cash in an existing partnership and a bonus is given to a new
partner, the old partners' capital accounts increase.
B. When a new partner is admitted to an existing partnership upon an investment of cash,

the new partner's capital account may appropriately be debited for an amount other
than the amount of cash invested.
C. The partnership agreement should include steps to follow if a partner withdraws from
the partnership.
D. When a new partner is admitted to an existing partnership upon an investment of cash,

the new partner's capital account will always equal the amount of cash the new partner
invested.
AACSB: Analytic
Blooms: Understand
19-88
86. Janice Miller operates a sole proprietorship business that sells camping equipment. On
January 1, 2016, Miller has agreed to transfer her assets and liabilities to a partnership
that will operate The Camping Company. Miller will own a two-thirds interest in the capital
of the partnership. The agreed upon values of assets and liabilities to be transferred
follow.
Accounts receivable of $50,000 (of which approximately $2,000 is uncollectible)

AACSB: Analytic
AICPA FN: Reporting
Blooms: Apply
Difficulty: 3 Hard
19-89
87. Mary Ann Mason operates a sole proprietorship business that sells craft supplies. On
January 1, 2016, Mason has agreed to transfer her assets and liabilities to a partnership
that will operate The Craft Company. Mason will own a one-third interest in the capital of
the partnership. The agreed upon values of assets and liabilities to be transferred follow.
Accounts receivable of $2,000 (of which approximately $200 is uncollectible)

AACSB: Analytic
AICPA FN: Reporting
Blooms: Apply
Difficulty: 3 Hard
19-90
88. Blake Kredell owns and operates a retail business called Blake's Camera Shop. His
postclosing trial balance on December 31, 2016, is provided below. Blake plans to enter
into a partnership with Carmen Santos, effective January 1, 2017. Profits and losses will be
shared equally. Blake will transfer all assets and liabilities of his store to the partnership,
after revaluation. Santos will invest cash equal to Blake's investment after revaluation. The
agreed values are: Accounts Receivable (net), $7,500; Merchandise Inventory, $27,000;
and Store Equipment, $8,000.
The partnership will operate under the name Picture Perfect.
Required: 1) Record each partner's investment on page 1 of a general journal. Omit
descriptions. 2) Prepare a balance sheet for Picture Perfect just after the investments.
19-91
AACSB: Analytic
AICPA FN: Reporting
Blooms: Apply
Difficulty: 3 Hard
19-92
89. Patsy Garrison owns and operates a bakery called Patsy's Pastries. Her postclosing trial
balance on December 31, 2016, is provided below. Garrison plans to enter into a
partnership with Erika Noreen, effective January 1, 2017. Profits and losses will be shared
equally. Garrison will transfer all assets and liabilities of her store to the partnership, after
revaluation. Noreen will invest cash equal to Garrison's investment after revaluation. The
and Store Equipment, $16,000. The partnership will operate under the name Baker's
Delight. Record each partner's investment on page 1 of a general journal. Omit
descriptions.
Prepare a balance sheet for Baker's Delight just after the investments.
19-93
AACSB: Analytic
AICPA FN: Reporting
Blooms: Apply
Difficulty: 3 Hard
19-94
90. Brian McCarthy owns and operates a business called Brian's Music Shop. His postclosing
trial balance on December 31, 2016, is provided below. Brian plans to enter into a
partnership with Emma Jones, effective January 1, 2017. Profits and losses will be shared
equally. Brian will transfer all assets and liabilities of his shop to the partnership, after
revaluation. Emma will invest cash equal to Brian's investment after revaluation. The
and Store Equipment, $15,000.
The partnership will operate under the name Beautiful Music.
Prepare a balance sheet for Beautiful Music just after the investments.
19-95
AACSB: Analytic
AICPA FN: Reporting
Blooms: Apply
Difficulty: 3 Hard
19-96
91. Net income for the Gifts Galore for the year ended December 31, 2016, was $18,000. The
partners, Chang and Jennings, share profits in the ratio of 70 and 30 percent, respectively.
1. How much of the net income will be allocated to Chang?

2. How much of the net income will be allocated to Jennings?
1. $12,600; 2. $5,400
Feedback: Chang = $18,000 × .7 = $12,600

Jennings = $18,000 x .3 = $5,400
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
19-97
92. Net income for Customer Sales for the year ended December 31, 2016, was $32,000. The
partners, Johnson and Lindstrom, share profits in the ratio of 60 and 40 percent,
respectively. The balance in Johnson's capital account is $60,000. The balance in
Lindstrom's capital account is $60,000.
1. How much of the net income will be allocated to Johnson?

2. How much of the net income will be allocated to Lindstrom?
1. $19,200; 2. $12,800
Feedback: Johnson = $32,000 × .6 = $19,200

Lindstrom = $32,000 × .4 = $12,800
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
19-98
93. Wright and Beard are partners. Net income or loss is allocated on the basis of the
balances of the partners' capital accounts at the beginning of the year. On January 1, 2016,
the balances were Wright, $42,000, and Beard, $18,000. Net loss for the partnership for
the year ended December 31, 2016, was $9,000.
1. How much of the net loss will be allocated to Wright?

2. How much of the net loss will be allocated to Beard?
1. $6,300; 2. $2,700
Feedback: Wright = ($42,000/$60,000) × $9,000 = $6,300

Beard = ($18,000/$60,000) × $9,000 = $2,700
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
19-99
94. Martinez and Lopez are partners in business named Builders' Services. For the year ended
December 31, 2016, net income for Builders' Services was $60,000.
Net income or loss is allocated on the basis of the balances of the partners' capital
accounts at the beginning of the year. On January 1, 2016, the balances were Martinez,
$48,000, and Lopez, $24,000.
1. How much of the net income will be allocated to Martinez?

2. How much of the net income will be allocated to Lopez?
1. $40,000; 2. $20,000
Feedback: Martinez = ($48,000/$72,000) × $60,000 = $40,000

Lopez = ($24,000/$72,000) × $60,000 = $20,000
AACSB: Analytic
Blooms: Apply
19-100
95. Escobar and Woods are partners who share profits and losses in the ratio of 60 and 40
percent, respectively. The partnership agreement provides that each will be paid a yearly
salary of $18,000. The salaries were paid to the partners during 2016 and were charged to the
partners' drawing accounts. The Income Summary account has a credit balance of $60,000
1. What amount of net income or loss will be allocated to Escobar?

2. What amount of net income or loss will be allocated to Woods?
1. $32,400 ($18,000 + $14,400); 2. $27,600 ($18,000 + $9,600)
Feedback:
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
19-101
96. Madison and Hamilton are partners who share profits and losses equally. The partnership
agreement provides that Madison will be paid an annual salary of $40,000 and Hamilton will
be paid an annual salary of $30,000. The salaries were paid to the partners during 2016 and
were charged to the partners' drawing accounts. The Income Summary account has a credit
1. What amount of net income or loss will be allocated to Madison?

2. What amount of net income or loss will be allocated to Hamilton?
1. $45,000 ($40,000 + $5,000); 2. $35,000 ($30,000 + $5,000)
Feedback:
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
19-102
97. Lenik and Olsen are partners who share profits and losses in the ratio of 60 and 40 percent,
respectively. The partnership agreement provides that each will be paid a yearly salary of
$19,000. The salaries were paid to the partners during 2016 and were charged to the partners'
drawing accounts. The Income Summary account has a debit balance of $4,000 after revenue
and expense accounts are closed at the end of the year.
1. What amount of net income or loss will be allocated to Lenik?

2. What amount of net income or loss will be allocated to Olsen?
1. $6,200 net loss; 2. $2,200 net income;
Feedback:
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
19-103
98. Mavis and Roxanne are partners who share profits and losses equally. The partnership
agreement provides that Mavis will be paid an annual salary of $54,000 and Roxanne will be
paid an annual salary of $36,000. The salaries were paid to the partners during 2016 and were
charged to the partners' drawing accounts. The Income Summary account has a debit balance
of $10,000 after revenue and expense accounts are closed at the end of the year.
1. What amount of net income or loss will be allocated to Mavis?

2. What amount of net income or loss will be allocated to Roxanne?
1. $4,000 net income; 2. $14,000 net loss;
Feedback:
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
19-104
99. Norton and Morris are partners. The partnership agreement provides that Norton will receive a
salary of $26,000 and Morris will receive a salary of $20,000. These salaries were paid to the
partners during 2016 and were charged to the partners' drawing accounts. Both partners also
receive 10 percent on their capital balances at the beginning of the year. The balance of any
remaining profits or losses is divided equally. The beginning capital account balances for 2016
were Norton, $100,000, and Morris, $80,000. At the end of the year, the partnership has a net
income of $60,000.
1. What amount of net income or loss will be allocated to Norton?

2. What amount of net income or loss will be allocated to Morris?
1. $34,000 ($26,000 + $10,000 - $2,000)

2. $26,000 ($20,000 + $8,000 - $2,000)
Feedback:
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
19-105
100. Norma and Marilyn are partners. The partnership agreement provides that Norma will
receive a salary of $30,000 and Marilyn will receive a salary of $50,000. These salaries
were paid to the partners during 2016 and were charged to the partners' drawing accounts.
Both partners also receive 8 percent on their capital balances at the beginning of the year.
The balance of any remaining profits or losses is divided equally. The beginning capital
account balances for 2016 were Norma, $80,000, and Marilyn, $40,000. At the end of the
year, the partnership has a net income of $90,000.
1. What amount of net income or loss will be allocated to Norma?

2. What amount of net income or loss will be allocated to Marilyn?
1. $36,600 ($30,000 + $6,400 + $200)

2. $53,400 ($50,000 + $3,200 + $200)
Feedback:
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
19-106
101. Walters and Kim are partners. The partnership agreement provides for salary allowances
of $26,000 for Walters and $22,000 for Kim and for interest of 10 percent on each partner's
invested capital at the beginning of the year. The balance of any remaining profits or
losses is to be divided 40 percent to Walters and 60 percent to Kim. On January 1, 2016,
the capital account balances were Walters, $75,000, and Kim, $95,000. Net income for the
year was $72,000.
1. On page 10 of a general journal, record the following entries on December 31, 2016.
Omit descriptions.

2. Prepare a schedule showing the division of net income to the partners as it would
appear on the income statement for 2016.
19-107
AACSB: Analytic
AICPA FN: Reporting
Blooms: Evaluate
Difficulty: 3 Hard
19-108
102. Bryce and Kendall are partners. The partnership agreement provides for salary allowances
of $52,000 for Bryce and $44,000 for Kendall and for interest of 10 percent on each
partner's invested capital at the beginning of the year. The balance of any remaining
profits or losses is to be divided 40 percent to Bryce and 60 percent to Kendall. On January
1, 2016, the capital account balances were Bryce, $150,000, and Kendall, $190,000. Net
income for the year was $144,000.
1. On page 22 of a general journal, record the following entries on December 31, 2016.
Omit descriptions.

2. Prepare a schedule showing the division of net income to the partners as it would
appear on the income statement for 2016.
19-109
AACSB: Analytic
AICPA FN: Reporting
Blooms: Evaluate
Difficulty: 3 Hard
19-110
103. Nancy Conradt and Chris Russell are partners who share profits and losses in the ratio of
60:40, respectively. On December 31, 2016, they decide that Russell will sell one-half of
his interest to Pam Ortega. At that time, the balances of the capital accounts are $500,000
for Conradt and $700,000 for Russell. The partners agree that before the new partner is
carried at $411,200 revalued at $403,600, and a building with a book value of $260,000
revalued at $450,000. On page 10 of a general journal, record the revaluation entries. Omit
Conradt, $609,440; Russell, $772,960
AACSB: Analytic
AICPA FN: Reporting
Blooms: Evaluate
Difficulty: 3 Hard
19-111
104. Brian Colt and Karen Randall are partners who share profits and losses in the ratio of
70:30, respectively. On December 31, 2016, they decide that Randall will sell one-half of
her interest to Jane Wu. At that time, the balances of the capital accounts are $70,000 for
Colt and $30,000 for Randall. The partners agree that before the new partner is admitted,
certain assets should be revalued. These assets include merchandise inventory carried at
$11,000 revalued at $10,000, and a building with a book value of $60,000 revalued at
$70,000. On page 10 of a general journal, record the revaluation entries. Omit descriptions.
Then, determine the capital balances of the two existing partners after the revaluation is
made.
Colt, $76,300; Randall, $32,700
AACSB: Analytic
AICPA FN: Reporting
Blooms: Evaluate
Difficulty: 3 Hard
19-112
105. Peter Nguyen and Loren Washington are partners who share profits and losses in the ratio
of 60:40, respectively. On December 31, 2016, they decide that Washington will sell one-
half of her interest to Grace Dolores. At that time, the balances of the capital accounts are
$75,000 for Nguyen and $45,000 for Washington. The partners agree that before the new
partner is admitted, certain assets should be revalued. These assets include merchandise
inventory carried at $42,000 revalued at $48,000, and a building with a book value of
$100,000 revalued at $120,000. On page 10 of a general journal, record the revaluation
entries. Omit descriptions. Then, determine the capital balances of the two existing
partners after the revaluation is made.
Nguyen, $90,600; Washington $55,400
AACSB: Analytic
AICPA FN: Reporting
Blooms: Evaluate
Difficulty: 3 Hard
19-113
106. Catherine Vollick and Danica Hubbard are partners. To expand the expertise of their
business, they have agreed to admit Kyle Simon to the partnership on January 1, 2016. The
capital account balances on January 1, 2016, after revaluation of assets, are Vollick,
$80,000, and Hubbard, $60,000. Net income or net loss is shared equally. On page 8 of a
general journal, record the admission of Simon to the partnership on January 1, 2016,
assuming that Vollick sells one-half of her interest to Simon for $50,000 in cash. Omit the
description.
AACSB: Analytic
AICPA FN: Reporting
Blooms: Apply
19-114
107. Kaitlyn Fields and Tyler Unger are partners. To expand the expertise of their business,
they have agreed to admit Serena Singh to the partnership on January 1, 2016. The capital
account balances on January 1, 2016, after revaluation of assets, are Fields, $80,000, and
Unger, $60,000. Net income or net loss is shared equally. On page 7 of a general journal,
record the admission of Singh to the partnership on January 1, 2016, assuming that Fields
sells one-half of her interest to Singh for $39,000 in cash. Omit the description.
AACSB: Analytic
AICPA FN: Reporting
Blooms: Apply
Difficulty: 3 Hard
19-115
108. Roy Reynolds and Mike Truesdale are partners. To expand the expertise of their business,
they have agreed to admit Jennie Fellows to the partnership on January 1, 2016. The capital
account balances on January 1, 2016, after revaluation of assets, are Reynolds, $80,000,
and Truesdale, $60,000. Net income or net loss is shared equally. On page 20 of a general
journal, record the admission of Fellows to the partnership on January 1, 2016, assuming
that Fellows invests $46,000 for 20 percent interest in the business. Omit the descriptions.
Feedback:
AACSB: Analytic
AICPA FN: Reporting
Blooms: Apply
Difficulty: 3 Hard
19-116
109. Karen Schuler and Mary Ryan are partners. To expand the expertise of their business, they
have agreed to admit Samuel Wing to the partnership on January 1, 2016. The capital
account balances on January 1, 2016, after revaluation of assets, are Schuler, $80,000, and
Ryan, $60,000. Net income or net loss is shared equally. On page 10 of a general journal,
record the admission of Wing to the partnership on January 1, 2016, assuming that Wing
invests $58,000 for one-third interest in the business. Omit the descriptions.
Feedback:
AACSB: Analytic
AICPA FN: Reporting
Blooms: Apply
Difficulty: 3 Hard
19-117
110. Spalding, Dane, and Manson are partners, sharing profits and losses in the ratio of 30, 40,
withdraws from the partnership, the assets and liabilities are to be revalued, the gain or
loss allocated to the partners, and the retiring partner paid the balance of his account.
Manson withdraws from the partnership on December 31, 2016. The capital account
balances before recording revaluation are Spalding, $230,000; Dane, $250,000; and
Manson, $220,000. The effect of the revaluation is to increase Merchandise Inventory by
$21,000 and the Building account balance by $41,000. How much cash will be paid to
Manson?
The increase to Manson's capital account as a result of the revaluation would be $18,600
or (($21,000 + $41,000) × 30%), which will result in a new capital account balance of
$238,600 or ($220,000 + $18,600). Since the partners have agreed that the retiring partner
will be paid the balance of his account, Manson will receive $238,600.
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
19-118
111. Garvey, Lopes, and Russell are partners, sharing profits and losses in the ratio of 35, 35,
Garvey withdraws from the partnership on December 31, 2016. The capital account
balances before recording revaluation are Garvey, $280,000; Lopes, $230,000; and Russell,
$290,000. The effect of the revaluation is to increase Merchandise Inventory by $44,000
and the Building account balance by $76,000. How much cash will be paid to Garvey?
The increase to Garvey's capital account as a result of the revaluation would be $42,000 or
(($44,000 + $76,000) × 35%), which will result in a new capital account balance of
will be paid the balance of his account, Garvey will receive $322,000.
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
19-119
112. Abbott, Casper, and Costello are partners, sharing profits and losses in the ratio of 30, 30,
Costello withdraws from the partnership on December 31, 2016. The capital account
balances before recording revaluation are Abbott, $130,000; Casper $150,000; and
Costello, $120,000. The effect of the revaluation is to increase Merchandise Inventory by
$5,000 and the Building account balance by $20,000. How much cash will be paid to
Costello?
The increase to Costello's capital account as a result of the revaluation would be $10,000
or (($5,000 + $20,000) × 40%), which will result in a new capital account balance of
will be paid the balance of his account, Costello will receive $130,000.
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
Matching Questions
19-120
113. Match the accounting terms with the description.
Another term for partnership

1. Partnership agreement 8
2. Partnership The legal term for termination of a
agreement partnership 12
The amount of net income or net loss
3. Mutual agency allocated to each partner 13
4. Limited A member of a partnership who has
partnership unlimited liability 7
A member of a partnership whose
5. Statement of liability is limited to his or her investment
partners' equities in the partnership 6
A partnership having one or more
6. Limited partner limited partners 4
Termination of a business by
distributing all assets and discontinuing
7. General partner the business 10
8. Articles of An informational entry in the general
partnership journal 11
The characteristic of a partnership by
which each partner is empowered to act
as an agent for the partnership, binding
9. Unlimited liability the firm by his or her acts 3
An association of two or more persons
who carry on, as co-owners, a business
10. Liquidation for profit 1
A legal contract forming a partnership
11. Memorandum and specifying certain details of
entry operation 2
A financial statement prepared to
12. Dissolution summarize the changes in partners' 5
19-121
capital accounts during an accounting
period
The implication that a creditor can
look to all partners' personal assets as
13. Distributive well as the assets of the partnership for
share payment of the firm's debts 9
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
19-122
114. Identify and discuss the key characteristics of partnerships and partner agreements.
A partnership represents the business organization of two or more persons who carry on,
as co-owners, a business for profit. A partnership agreement is drawn up and legally
known as the Articles of Partnership which details name of partners, name, location and
nature of the business, starting date of the agreement, life of the partnership, rights and
duties of each partner, capital contributions, distribution of income or loss and rules on
withdrawals, method of accounting and fiscal period and procedures to be followed upon
dissolution or liquidation.
AACSB: Analytic
AICPA BB: Industry
Blooms: Understand
115. Explain the major advantages and disadvantages of the partnership form.
Advantages of the partnership form include pooling of talent, abilities and finances and it
is easy and inexpensive to form especially when compared with a corporation.
Partnerships do not pay income tax as a partner's share of profits or loss "flow through" to
the individual's income tax return. Disadvantages include unlimited liability for general
partners, mutual agency which empowers each partner with the ability to bind the firm to
commitments, limited life and partnerships are not freely transferable.
AACSB: Analytic
AICPA BB: Industry
19-123
Blooms: Understand
116. Antonio Bandala wishes to retire and sell his partnership interest valued at $170,000 to
the remaining partners. Prepare the journal entry to record the withdrawal from the
partnership.
AACSB: Analytic
AICPA FN: Reporting
Blooms: Apply
Difficulty: 3 Hard
117. Antonio Bandala wishes to sell half of his partnership interest for $70,000 to Phillips. His
capital balance is $120,000. Prepare the journal entry to record this transaction in the
AACSB: Analytic
AICPA FN: Reporting
Blooms: Apply
Difficulty: 3 Hard
19-124
19-125
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5. Stylus, et Stigma, lente aucta.
SPECIFIC CHARACTER.
Heath, whose tips are bearded, and just within the blossom; the leaves grow
by fours, the flowers mostly by threes, and are smooth, cylindrically club-
shaped, an inch long, and of a deep blood colour.
DESCRIPTION.
Stem shrubby, grows two feet high, and upright; the branches grow
upright, having many smaller branches, which are thick set, and very short.
The Leaves grow by fours, are linear, smooth, shining, and of a deep
green, having very short foot-stalks, pressed to the stem.
The Flowers terminate the shorter branches near the summit of the
stem, forming as it were a long bunch; the foot-stalks are long, having three
floral leaves at their base.
Empalement. Cup four-leaved, which are lance-shaped, sawed, and
pressed to the blossom.
The Blossom is cylindrically club-shaped, smooth, blood colour, and an
inch long; the segments of the mouth are obtuse, and straight.
Chives. Eight hair-like threads, fixed into the receptacle; the tips are
bearded, and just within the blossom.
Pointal. Seed-vessel nearly egg-shaped, furrowed, and downy; Shaft
without the blossom; Summit four-cornered.
Native of the Cape of Good Hope.
Flowers from August, till December.
REFERENCE.
1. Empalement, and Blossom.

2. The Empalement magnified.
3. The Chives, and Pointal.
4. The Chives detached from the Pointal; one tip magnified.
5. The Shaft, and its Summit magnified.
ERICA cubica.
CHARACTER SPECIFICUS.
Erica, antheris basi bicornibus, sub-inclusis; stylus longissimus; corollis

sub-campanulatis, purureis, oris laciniis patulis, maximis, ovatis; foliis sub-
quaternis, obtusis.
DESCRIPTIO.
Caulis erectus, teres, ramosus, fruticosus, pedalis; rami et ramuli

filiformes, laxi, erecti.
Folia quaterna, sæpe quina, obtusa, reflexa, apice incurvata, glabra,
nitida, subtus sulcata; petiolis rubris, adpressis.
Flores sub-terminales, umbellati, cernui; pedunculi longissimi, angulati,
purpurei, foliolis binis, coloratis instructi.
Calyx. Perianthium tetraphyllum, foliolis ovatis, acuminatis, adpressis,
apicibus viridis.
Corolla globoso-campanulata, purpurea, limbo maximo, expanso;
laciniis ovatis, concavis.
Stamina. Filamenta octo capillaria, longitudine tubi, receptaculo inserta.
Antheræ bifidæ, ad basin bicornutæ.
Pistillum. Germen sub-globosum. Stylus filiformis, exsertus, corolla
duplo longior, purpureus. Stigma concavum, marginatum.
Habitat ad Caput Bonæ Spei.
Floret a mensi Aprili, in Julium.
REFERENTIA.
1. Calyx, et Corolla.
2. Calyx lente auctus.
3. Stamina, et Pistillum.
4. Stamina a Pistillo diducta; anthera una lente aucta.
SPECIFIC CHARACTER.
Heath, with tips two-horned at the base, nearly within the blossoms; shaft
very long; blossoms almost bell-shaped, and purple, having the segments of
the mouth spreading, very large, and egg-shaped; leaves growing mostly by
fours, and blunt ended.
DESCRIPTION.
Stem upright, cylindrical, branching, shrubby, growing a foot high; the

larger and smaller branches are thread-shaped, weak, and upright.
Leaves grow by fours, often by fives, blunt ended, bent back, and turned
inward at the point; smooth, shining, and channelled beneath; foot-stalks
red, and pressed to the stem.
The Flowers grow near the summits of the branches, in bunches,
hanging down; having very long foot-stalks, angled, purple, and two small,
coloured leaves on them.
Empalement. Cup four-leaved, which are egg-shaped, tapered, and
pressed to the blossom, the points green.
Blossom globularly bell-shaped and purple, the border very large and
spreading; the segments egg-shaped and concave.
Chives. Eight hair-like threads, the length of the tube, fixed into the
receptacle. Tips two-cleft, and two-horned at the base.
Pointal. Seed-bud nearly globular. Shaft thread-shaped, without the
blossom, twice its length, and purple. Summit concave, and bordered.
Flowers from April, till July.
REFERENCE.
1. The Empalement, and Blossom.
5. The Shaft, and Summit, magnified.
ERICA curviflora.
Erica, antheris muticis, sub-exsertis; corollis curvatis, clavato cylindricis,

pubescentibus, terminalibus, luteo-aurantiis; foliis quaternis, linearibus,
glabris.
DESCRIPTIO.
Caulis fruticosus, bipedalis; laxus, superne villosus; rami laxi, ramulosi,

ramulis brevissimis, frequentissimis, sparsis.
Folia quaterna, linearia, obtusa, glabra, subtus sulcata.
Flores terminales in ramulis, patenti, racemum longum formantes;
pedunculi brevissimi, foliolis tribus, adpressis.
Calyx. Perianthium tetraphyllum, foliolis subulatis, acuminatis, glabris,
adpressis.
Corolla curvata, clavata, pollicaris, pubescentia, luteo-aurantia; oris
laciniis expansis.
Stamina. Filamenta octo capillaria, curvata, longitudine tubi. Antheræ
muticæ.
Pistillum. Germen clavatum, sulcatum. Stylus filiformis, curvatus,
exsertus. Stigma tetragonum.
Floret a mensi Julii, in Novembrem.
REFERENTIA.
2. Calyx, lente auctus.
SPECIFIC CHARACTER.
Heath, with beardless tips, just without the blossoms, which are curved,
cylindrically club-shaped, downy, terminating the branches, and of a yellow
gold colour; the leaves grow by fours, are linear, and smooth.
DESCRIPTION.
Stem shrubby, grows two feet high, weak, and hairy at the top; branches
weak and numerous; the smaller branches are very short, numerous, and
scattered.
Leaves grow by fours, are linear, blunt, smooth, and furrowed
underneath.
Flowers terminate the smaller branches, spreading out, and forming a
long spike; foot-stalks very short, with three small leaves pressed to the cup.
Empalement. Cup four-leaved, which are awl-shaped, tapering, smooth,
and pressed to the blossom.
Blossom curved, club-shaped, an inch long, downy, and of a yellow gold
colour; the segments of the mouth spread outward.
Chives. Eight hair-like threads, which are curved, and the length of the
blossom. Tips beardless.
Pointal. Seed-bud club-shaped, and furrowed. Shaft thread-shaped,
curved, and without the blossom. Summit four-cornered.
Flowers from July, till November.
REFERENCE.
1. The Empalement, and Blossom.

2. The Empalement, magnified.
5. The Shaft, and its Summit, magnified.
ERICA discolor.
Erica, antheris aristatis, inclusis; stylo exserto; corollis tubulosis,

subcylindraceis; foliis ternis.
DESCRIPTIO.
Caulis fruticosus, tripedalis, teres, erectus, gracilis, superne pubescens,

ramulis subsimplicibus.
Folia terna, linearia, erecto-patentia, supra plana, subtus revoluta, nitida,
saturate viridia.
Flores plerumque tres, subcernui, ramei, terminales, prope caulis
summitatem.
Calyx. Perianthium duplex, interius tetraphyllum, foliolis ovatis, erectis,
luteo-virentibus: exterius triphyllum, foliolis brevioribus priori
incumbentibus.
Corolla tubulosa, subcylindracea, ima parte, carnea, pallida, summa,
flavo-virescente, limbo quadrilobo, æquali erectiusculo.
Stamina. Filamenta octo capillaria, receptaculo inserta. Antheræ
oblongiusculæ, bipartitæ, inclusæ, aristatæ.
Pistillum. Germen oblongum. Stylus filiformis, corolla longior, apice
inflexo. Stigma subtetragonum, virescens.
Floret a Novembri in Aprilem.
REFERENTIA.
5. Stylus, et Stigma lente aucta.
SPECIFIC CHARACTER.
Heath, with bearded tips within the blossom; the pointal standing out; the
blossom tubular, nearly cylindrical; leaves growing by threes.
DESCRIPTION.
Stem shrubby, grows to three feet high, cylindrical, upright, slender,

downy at the top, the branches seldom divided.
Leaves growing by threes, linear, between upright and spreading, smooth
on the upper, and rolled back on the under, surface, shining and dark green.
Flowers are commonly three together, bending a little downward,
terminating the branches near the upper part of the stem.
Empalement. Cup double, the inner four-leaved, ovate, erect, and of a
greenish yellow: the outer three-leaved, the leaves shorter than the former,
and lying on them.
Blossom tubular, nearly cylindrical, of a light flesh colour at the base,
and yellowish green at the mouth, which is divided into four equal nearly
erect segments.
Chives. Eight hair-like threads, fixed into the receptacle. Tips nearly
oblong, divided, bearded, and within the blossom.
Pointal. Seed-vessel oblong. Shaft thread-shaped, longer than the
blossom, the point bending. The Summit nearly four-cornered, and greenish.
Time of flowering from November till April.
REFERENCE.
1. The Empalement with the Blossom.

3. The Chives and Pointal.
4. The Chives detached from the Pointal, one tip magnified.
5. The Shaft, and its Summit magnified.
ERICA droseroides.
Erica, antheris cristatis, inclusis; corolla ventricosa, ore obliqua, purpurea;

pedunculis coloratis, longissimis; foliis alternis, sparsis, obtusis, pilis
glandulosis micantibus hirtis.
DESCRIPTIO.
Caulis erectus, spithameus; rami et ramuli filiformes, sparsi, erecto-

patentes, virgati.
Folia alterna, sparsa, linearia, obtusa, apice reflexa, pilis glandulosis
hirta.
Flores terminales, sub-umbellati, sub-erecti; pedunculi filiformes, foliis
duplo longiores; bracteæ minutæ, coloratæ.
Calyx. Perianthium tetraphyllum; foliolis sub-ovatis, viscosis,
acuminatis, coloratis, apicibus reflexis.
Corolla ventricosa, purpurea, costata, pubescens, ore obliqua, arctata,
profunde sanguinea; laciniis cordatis, expansis.
Stamina. Filamenta octo capillaria, torta, receptaculo inserta; antheræ
cristatæ, inclusæ.
Pistillum. Germen clavatum, sulcatum. Stylus filiformis, purpureus.
Stigma tetragonum.
Floret a mense Julii ad Octobrem.
REFERENTIA.
1. Calyx et Corolla.
3. Stamina et Pistillum.
4. Stamina a Pistillo diducta; antherâ unâ lente auctâ.
5. Stylus et Stigma lente aucta.
SPECIFIC CHARACTER.
Heath, with crested tips, within the blossom, which is big-bellied, oblique-
mouthed, and purple; the foot-stalks are coloured, and very long; leaves
grow alternate, scattered, blunt, and thick with shining glandular hairs.
DESCRIPTION.
Stem upright, about a span high; the larger and smaller branches are
thread-shaped, scattered, upright, spreading, and twiggy.
Leaves grow alternate, scattered, linear, blunt, the end bent back, and
thick with glandular hairs.
Flowers are terminal, nearly in bunches, almost upright; the foot-stalks
are thread-shaped, and twice as long as the leaves; the floral leaves are
small, and coloured.
Empalement. Cup four-leaved; leaves nearly egg-shaped, clammy,
pointed, coloured, and bent outward at the top.
Blossom big-bellied, purple, ribbed, and downy, with the mouth oblique,
narrowed, and of a deep blood colour; the segments are heart-shaped, and
spreading.
Chives. Eight hair-like threads, which are twisted, and fixed into the
receptacle; the tips are crested, and within the blossom.
Pointal. Seed-vessel club-shaped, and furrowed. Shaft thread-shaped,
and purple. Summit four-cornered.
Flowers from the month of July till October.
REFERENCE.
1. The Empalement and Blossom.
3. The Chives and Pointal.
5. The Shaft and its Summit magnified.
ERICA exsurgens.
Erica, antheris muticis, exsertis; foliis quaternis, mucronatis, apicibus

reflexis; corollis clavato-cylindraceis, verticillatis, aurantiis.
DESCRIPTIO.
Caulis fruticosus, pedalis et ultra, erectus, basi simplicissimus; rami

verticillati, simplices, erecti.
Folia quaterna, linearia, glabra, apice reflexa, mucronata, supra plana,
subtus sulcata, unguicularia, petiolis adpressis.
Flores in medio ramorum verticillati, recti; verticilli alter alteri
exsurgentes; pedunculi longi, bracteis tribus instructi.
Calyx. Perianthium tetraphyllum, foliolis lanceolatis, acuminatis,
carinatis, viscosis, adpressis.
Corolla clavato-cylindrica, pollicaria, aurantia; ore limbo quadrilobo
revoluto, laciniis superioribus longioribus.
Stamina. Filamenta octo capillaria, receptaculo inserta. Antheræ muticæ,
magnæ, exsertæ.
Pistillum. Germen clavatum, sulcatum. Stylus filiformis, staminibus
longior. Stigma tetragonum.
Floret a mense Septembris, in Martium.
REFERENTIA.
3. Stamina et Pistillum.

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Accounting for Partnerships

True / False Questions

3. Unlike a corporation, a partnership does not pay income tax.

12. Investments by a partner are credited to that partner's capital account.

Fill in the Blank Questions

Multiple Choice Questions

49. Which of the following statements is not correct?

D. When a partner dies or is incapacitated, the partnership is dissolved.

50. Federal income tax is levied on

A. a partnership based on its total net income when earned.

D. the partnership at the end of the fiscal period.

A. Jackson: $97,500 and Kiln:$97,500

B. Jackson: $55,000 and Kiln: $140,000

C. Jackson: $140,000 and Kiln: $55,000

D. Jackson: $225,000 and Kiln: $55,000

54. The amount that each partner withdraws from a partnership

A. cannot exceed the net income reported by the partnership.

B. should be specified in the partnership agreement.

D. is usually determined by the amount of the net income.

55. Which of the following statements is correct?

D. A new partner must purchase the partnership interest of another partner.

A. the partner's capital account and a credit to Cash.

B. Cash and a credit to an account called Partners' Equities.

C. Cash and a credit to the partner's capital account.

D. Cash and a credit to the partner's drawing account.

A. $16,000 and $0, respectively.

B. $13,000 and $0, respectively.

C. $32,000 and $19,000, respectively.

D. $16,000 and $3,000, respectively.

B. Going concern assumption.

C. Separate entity assumption.

D. Full disclosure principle.

A. $64,000 and $38,000, respectively.

B. $32,000 and $6,000, respectively.

C. $32,000 and $0, respectively.

D. $26,000 and $0, respectively.

C. cannot be invested in the new partnership.

61. The general ledger of a partnership will

A. not contain a separate drawing account for each partner.

C. not contain a capital account or accounts.

D. contain a separate capital account for each partner.

D. None of these statements are correct.

D. a legal requirement in order for a partnership to be formed.

A. Income Summary and a credit to each partner's capital account.

B. each partner's capital account and a credit to Cash.

C. Income Summary and a credit to each partner's drawing account.

D. each partner's capital account and a credit to Income Summary.

A. the partner's capital account and a credit to Cash.

B. Salaries Expense and a credit to the partner's drawing account.

C. Income Summary and a credit to the partner's capital account.

D. Income Summary and a credit to the partner's drawing account.