Types of Partnerships SE11. BUSINESS APPLICATION Indicate whether each statement that follows is a Teflection of (a) normal partnership (b) limited partnership, (e) joint venture, or (d) S corporation. 1. A special type of partnership that, like corporations, confines the limited partner's potential loss to the amount of his or her investment. 2. A form of organization that has the disadvantage of unlimited liability. 3. An association formed by two or more entities for the purpose of achieving a specific goal. 4. A form of organization that makes it difficult to raise large amounts of capital. 5. A form of corporation that is treated as a partnership and pays no federal income taxes. Partnership Characteristics EJA. Indicate whether each action that follows is a reflection of (a) voluntary association, (b) a partnership agreement, (c) limited life, (d) mutual agency, or (e) unlimited liability 1. A partner signs an contract obligating the partnership. 2. A partner leaves a partnership for personal reasons. 3. A partner has to pay some of the debts of the partnership. 4. The partners write a contract among themselves. 5. A partner leaves the partnership ending the partnership. Partnership Advantages and Disadvantages E2A. Indicate whether each statement below is a reflection of an (a) advantage or a (b) disadvantage of the partnership form of business. 1. It is easy to form, change, and dissolve. 2. The life of a partnership is limited. 3. It gives the partners a certain amount of freedom and flexibility. 4. It is more difficult for a partnership to raise large amounts of capital and to transfer ownership interests than it is for a corporation. Partnership Formation E3A. Hanna Hark and Jamie Rice are watch repairmen who want to form a partnership and open a jewelry store. An attorney prepares their partnership agreement, which indi cates that assets invested in the partnership will be recorded at their fair market value and that liabilities will be assumed at book value. The assets contributed by each partner and the liabilities assumed by the partnership follow, Assets Hanna Hark Jamie Rice Total Cash $ 80,000 $60,000 $140,000 Accounts receivable 104,000 40.000 144,000 Allowance for uncollectible accounts 8,000 6,000 14.000 Supplies 2,000 1.000 3,000 Equipment 40,000 20,000 Liabilities Accounts payable 64,000 18,000 82,000 Prepare the journal entries necessary to record the original investments of Hark and Rice in the partnership 60.000 Distribution of Income E4A. Isha Shah and Brian Ruben agreed to form a partnership, Shah contributed $400,000 in cash, and Ruben contributed assets with a fair market value of $800,000. The partner ship, in its initial year, reported net income of S240,000. Calculate the distribution of the first year's income to the partners under each of the following conditions: 1. Shah and Ruben failed to include stated ratios in the partnership agreement. 2. Shah and Ruben agreed to share income and losses in a 3:2 ratio. 3. Shah and Ruben agreed to share income and losses in the ratio of their original investments. 4. Shah and Ruben agreed to share income and losses by allowing 10 percent interest on original investments and sharing any remainder equally Distribution of Income: Average Capital Balance E6A. Amine and Ankit operate a furniture rental business. Their capital balances on January 1, 2014, were $320,000 and $480,000, respectively. Amine withdrew cash of $64,000 from the business on April 1, 2014. Ankit withdrew $120,000 cash on Octo- ber 1, 2014. Amine and Ankit distribute partnership income based on their average capital balances each year. Income for 2014 was $320,000. Compute the income to be distributed to Amine and Ankit using their average capital balances in 2014. (Round percentages to the nearest tenth of a percent.) Distribution of Income or Losses: Salaries and Interest E51. Assume that the partnership agreement of Shah and Ruben in E4A states that Shah and Ruben are to receive salaries of $40,000 and $48,000, respectively; that Shah is to receive 6 percent interest on his capital balance at the beginning of the year; and that the remainder of income and losses are to be shared equally. Calculate the distribution of the income or losses under the following conditions: 1. Income totaled $240,000 before deductions for salaries and interest. 2. Income totaled 96,000 before deductions for salaries and interest. 3. There was a loss of $4,000. 4. There was a loss of $80,000
