MCC

ACCT 123
ACCOUNTING & FINANCIAL REPORTING II

Chapter 12: Accounting for Partnerships
Chapter 13: Accounting for Corporations
Part one :

1. A partnership comprised of two partners has the following information regarding income and loss allocation:

Partner #1 Partner #2
Initial investment 30,000 40,000
Salary allowance 25,000 20,000
Interest allowance in initial investment 10% 10%
Remainder 50% 50%

In its first year of business, the partnership generates an income of 80,000. Prepare a schedule showing how much income should be allocated to each partner.

2. On March 31, Sam Smith sells 100% of his interest in a partnership to Jack Jones for $100,000. All existing partners have agreed to admit Jack Jones as a partner. As of March 31, Sam’s capital account balance is $90,000. Prepare any necessary journal entries on the books of the partnership on March 31.
3. On June 30, a partnership has total partnership capital as follows:

Partner #1, capital 100,000
Partner #2, capital 200,000
Total partnership capital 300,000

The partners allocate income and losses 40% to partner #1 and 60% to partner #2. On June 30, the partners agree to admit a new partner (partner #3) who pays $50,000 to the partnership for a 12% interest in the partnership. Prepare any necessary journal entries on the books of the partnership on June 30.
4. On December 31, a partnership has total partnership capital as follows:

Partner #1, capital 100,000
Partner #2, capital 150,000
Partner #3, capital 200,000
Total partnership capital 450,000

The partners allocate income and losses 20% to partner #1, 30% to partner #2 and 50% to partner #3. On December 31, Partner #3 retires from the partnership and is paid $225,000 in PARTNERSHIP cash to settle his interest in the partnership. Prepare any necessary journal entries on the books of the partnership on December 31.
5. On June 30, a corporation issues 20,000 shares of $10 par value common stock for $50 per share. Prepare any necessary journal entries on June 30.
6. On July 15, a corporation declares a $75,000 common stock cash dividend. The dividend is paid on August 31.

A. Prepare any necessary journal entries on July 15.
B. Prepare any necessary journal entries on August 31.

7. On July 31, a corporation has the following financial data:

Common stock issued & outstanding 100,000 shares
Par value of common stock $10 per share
Market price of common stock $50 per share

On July 31, the corporation declares 10% stock dividend on common stock. The stock dividends are distributed on August 31.

A. Prepare any necessary journal entries on July 31.
B. Prepare any necessary journal entries on August 31.

8. Prepare any necessary journal entries for the following transactions:

A. On May 15, the corporation purchases 1,000 shares of its own common stock for $25 per share. The stock has a par value of $5 per share.
B. On November 15, the company sells 500 shares of the treasury stock for $30 per share.
9 –

1. Limited partners can play an active management role in the partnership. True or false.
2. It allowable for a partnership to have a negative remainder after allocating salary and interest allowances. True or false.
3. Stockholders are agents of a corporation. True or false.
4. Who in a corporation has the authority to declare dividends?
5. Are corporate charters issued by a state government or the federal government (pick one)?

Part Two: –

QUESTION 1

• Signify TRUE or FALSE as applicable for each of the following items as they pertain to corporations.

1. A corporation is a separate legal entity from its owners.

2. Stockholders are personally liable for the debts of the corporation.

3. Corporate income is taxable to the corporation as it is earned.

4. Dividends are taxable to the corporation as they are distributed.

5. Dividends represent a withdrawal of investment by stockholders
QUESTION 2

• For each of the following accounts, signify DEBIT or CREDIT to indicate the normal balance of the account.

1. Accounts payable

2. Partners’ capital

3. Partners’ withdrawals

4. Retained earnings

5. Common stock, no par value

6. Common stock, $10 par value

7. Common stock, $10 stated value

8. Contributed capital in excess of par value, common

9. Contributed capital in excess of stated value, common

10. Preferred stock, no par value

11. Preferred stock, $10 par value

12. Preferred stock, $10 stated value

13. Contributed capital in excess of par value, preferred

14. Contributed capital in excess of stated value, preferred

15. Dividends payable

16. Treasury stock

17. Contributed capital, treasury stock

18. Common stock dividends distributable
QUESTION 3

• Signify the description that most accurately and completely describes each of the stock terms below.

A. Shares of stock that were initially sold to the public
B. Shares of stock repurchased from the public by the corporation
C. The maximum number of shares that can be sold to the public per the corporate charter
D. Shares of stock that are currently held by the public
1. Authorized shares

2. Issued shares

3. Treasury shares

4. Outstanding shares

QUESTION 4

• Signify TRUE or FALSE as applicable for each of the following items as they pertain to allocation or partnership income and losses.

1. Allocation methods are dictated by state law.

2. Loss allocations must use the same methodology as income allocations.

3. If no allocation agreement exists, income and losses are allocated based on the partners’ capital account balances.

4. A partner with a high initial investment must be allocated more income than a partner with a low initial investment.

5. A partner with a debit balance is his/her capital account cannot be allocated any income until the account no longer has a debit balance.

QUESTION 5
• For each of the following accounts, signify which part of the accounting equation would include the account balance.
A. Current asset
B. Plant asset (Property, plant and equipment)
C. Intangible asset
D. Current liability
E. Long term liability
F. Current liability and long term liability
G. Partners’ / Stockholders’ equity

1. Accounts payable

2. Partners’ capital

3. Partners’ withdrawals

4. Retained earnings

5. Common stock, no par value

6. Common stock, $10 par value

7. Common stock, $10 stated value

8. Contributed capital in excess of par value, common

9. Contributed capital in excess of stated value, common

10. Preferred stock, no par value

11. Preferred stock, $10 par value

12. Preferred stock, $10 stated value

13. Contributed capital in excess of par value, preferred

14. Contributed capital in excess of stated value, preferred

15. Dividends payable

16. Treasury stock

17. Contributed capital, treasury stock

18. Common stock dividends distributable

QUESTION 6

• Signify TRUE or FALSE as applicable for each of the following items as they pertain to the different classes of stock.

1. Common stock has no automatic right to dividends

2. Claims of common stockholders on assets of the corporation upon liquidation are lower in priority than the claims of creditors and preferred stockholders.

3. Preferred stockholders are entitled to receive dividends before common stockholders

4. Claims of preferred stockholders on assets of the corporation upon liquidation take priority over the claims of creditors and common stockholders.
5. Treasury stock has no voting rights.
QUESTION 7

• Signify TRUE or FALSE as applicable for each of the following items as they pertain to general partnerships.

1. The partnership is a separate LEGAL entity from its owners.

2. The death of a partner dissolves the partnership.

3. If a partner provides services to the partnership, payments for the services provided can be treated as salary expense by the partnership.

4. Partners are personally liable for the debts of the partnership.

5. Partnership income tax is taxable to both the partnership and the individual partners.

QUESTION 8
• For each of the following accounts, signify which financial statement would contain the account balance. (Please note this question focuses only on the balance sheet and income statement.)
A. Balance sheet
B. Income statement
C. The account is NOT listed on the either the balance sheet or the income statement.

1. Accounts payable

2. Partners’ capital

3. Partners’ withdrawals

4. Retained earnings

5. Common stock, no par value

6. Common stock, $10 par value

7. Common stock, $10 stated value

8. Contributed capital in excess of par value, common

9. Contributed capital in excess of stated value, common

10. Preferred stock, no par value

11. Preferred stock, $10 par value

12. Preferred stock, $10 stated value

13. Contributed capital in excess of par value, preferred

14. Contributed capital in excess of stated value, preferred

15. Dividends payable

16. Treasury stock

17. Contributed capital, treasury stock

18. Common stock dividends distributable

QUESTION 9

• Signify TRUE or FALSE as applicable for each of the following items as they pertain to the liquidation of a general partnership.

1. Gains and losses from the sale of non-cash assets are allocated to partners based on the income and loss sharing agreement.

2. Partners must be paid for any salary and interest allowances prior to partnership liabilities being paid off.

3. Partners with capital deficiencies are required by law to cover the deficiencies.

4. Capital deficiencies do not affect the amount of cash distributed to each non-deficient partner upon liquidation.

5. Any cash remaining after all obligations have been settled is distributed to partners based on the income and loss sharing agreement.

QUESTION 10

• Signify the item that most accurately and completely describes a cumulative preference on preferred stock.

1. Once a dividend is declared, all unpaid preferred stock dividends from the current and prior periods must be paid prior to paying any common stock dividends.

2. If a dividends is not declared in the current period, the preference for that period expires.

3. Voting rights accumulate and grow over the life of the preference.

4. Claims on assets upon liquidation accumulate and grow over the life of the preference.

5. Dividends must be declared and paid to preferred stockholders each year.