1. TE. 12-003 A partnership is a legal entity separate from its owners. True Fal
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1. TE. 12-003 A partnership is a legal entity separate from its owners. True False 2. TF, 12-014 Each partner has a separate capital and withdrawal account True False 3. TF. 12-018 If the articles of partnership provide for annual salary allowances of $36,000 and $18,000 to X a net income is $30,000, X's share of net income is $20,000 nd Y, respectively, and True False 4. TF. 12-034 When a partner withdraws from the partnership, the partnership dissolves. True False 5. MC. 12-066 Luke and John share income and losses in a 2:1 ratio after allowing for salaries of $48,000 to Luke and $60,000 to John. Net income for the partnership is $93,000. Income should be divided as a. Luke, $55,000; John, $38,000 b. Luke, $65,000; John, $28,000 c. Luke, $38,000; John, $55,000 d. Luke, $46,500; John, $46,500 6, MC.12-126 Benton and Orton are partners who share income in the ratio of 1:3 and have capital balances of $70,000 and $30,000, respectively. Ramsey is admitted to the partnership and is given a 40% interest by investing $20,000, what is Benton's capital balance after admitting Ramsey? a. $20,000 b. $7,000 C. $70,000 d. $63,000 7. MC. 12-133 A partnership liquidation occurs when a. the ownership interest of one partner is sold to a new partner b. the assets are sold, liabilities paid, and business operations terminated c. a partner diesExplanation / Answer
1. False, the partnership is not a legal entity, but for taxation purpose we can treated a legal entity.
2. True, Partnership is the combination of persons, known as partners agree to cooperate to advance their mutual interest, each partner has capital account and withdrawal account because the share of contribution may be different and profit sharing can also be different from each partners so by end of the day we need to know the individual balances so we need to maintain separate account for the each partner. The partnership must maintain the capital accounts of the partners in order to pass the economic effects test because many of the determinations for proper allocations rely on well-maintained capital accounts for discerning the partners' interests.
3. True, if the net income of a partnership is less than the total of the allowances provided by the partnership agreement, the amount must be allocated in the ratio of allowances as per the agreement so it should be in 2:1 ratio, so X share of net income is $20,000.
4. False, when a partner withdraws form partnership then it cannot be dissolved, remaining partner’s profit sharing ratio will be changed. Suppose if only two partners then it can be dissolved.
5. Answer is C. Luke $38,000 & Jhon $ 55,000
If the net income of a partnership is less than the total of the allowances provided by the partnership agreement, the amount must be allocated in the ratio of allowances as per the agreement, here the total allowance need to pay is $108,000 and net income of partnership is only $93,000 so the income to be shared in the ratio of salaries i.e. $48,000: $60,000
6. The answer is $ 70,000. Because of they giving interest of 40% to the new incoming partner the Benton capital will not change.
7.
Answer “b”
A partnership liquidation occurs only when assets are sold and liabilities are paid, and business operations are terminated .if ownership is transferred then the partner name may change but it does not give any effect to the partnership and a partner dies remaining partners can carry the business, they may restructure the agreement but not liquidate the partnership firm.
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