Quiz Questions:
What is a partnership? Explain the concept of mutual agency and unlimited liability in a partnership.
Prepare the entries of the following partnership:
John Tate and Glen Breen started a company called Tabren Consulting, organized as a partnership, by investing personal cash and personal assets. John invested $15,000 cash and a computer system that has a fair market value of $5,000. Glen invested $12,000 cash and a vehicle that has a fair market value of $6,000.
Tabren Consulting’s net income for the first year was $10,000. The partnership arrangement stipulates that John Tate gets 60% and Glen Breen gets 40% of the profits. What is the entry at year-end to record the net income?
Jim Green wants to buy into the Tabren Consulting partnership. John and Glen agree to change the share structure of the company to allow Jim to join their partnership. Jim will pay $10,000 in cash to the company and a $10,000 cash bonus to both John and Glen. What is the entry to record the receipt of Jim Green’s $30,000 cash?
If John Tate decides to sell his remaining interest in the company 90 days after Jim Green joins the partnership as 50/50 to the remaining partners, what would this entry be?
The Tabren Consulting partnership has decided to close its business. The General Ledger accounts below include all balances at their closing date.
|
Assets (net) |
$129,000 |
|
Liabilities (net) |
$40,000 |
|
John Tate, Capital |
$ 41,000 |
|
Glen Breen, Capital |
$ 35,000 |
|
Jim Green, Capital |
$ 13,000 |
The assets are liquidated at an auction. The net proceeds of this auction are $100,000. The three partners agree to share the remaining cash equally. What would the closing entry be to close this company?
Answers:
A partnership is a contract between two or more people to operate a business together.
Mutual agency in a partnership means that one partner can act as an agent of the other partner(s) to commit the company to fulfill a contract of business.
Liability in a partnership will be determined by the partnership agreement, which will state what each partner can and can not do, and to what extent.
Both the created company and the partners are liable for any claims made against them.
|
DR Bank |
$15,000 |
|
|
DR Computers |
$ 5,000 |
|
|
CR John Tate, Capital |
$20,000 |
|
|
DR Bank |
$12,000 |
|
|
DR Vehicle |
$ 6,000 |
|
|
CR Glen Breen, Capital |
$18,000 |
|
DR Income Summary |
$10,000 |
|
|
CR John Tate, Capital |
$6,000 |
|
|
CR Glen Breen, Capital |
$4,000 |
Jim Green joins partnership:
|
DR Cash |
$30,000 |
|
|
CR John Tate, Capital |
$10,000 |
|
|
CR Glen Breen, Capital |
$10,000 |
|
|
CR Jim Green Capital |
$10,000 |
John Tate selling his interests:
|
DR John Tate, Capital |
|
CR Glen Breen, Capital |
|
CR Jim Green Capital |
The amount used in this entry would be the balance in John Tate’s Capital account after the company financial statements are prepared.
|
DR Accounts Payable |
$40,000 |
|
|
CR Cash |
$40,000 |
|
|
DR John Tate, Capital |
$20,000 |
|
|
DR Glen Breen, Capital |
$20,000 |
|
|
DR Jim Green, Capital |
$20,000 |
|
|
CR Cash |
$60,000 |
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