Ch16 Beams12ge SM

Chapter 16

PARTNERSHIPS — FORMA FOR MATION, TION, OPERATIONS, OPERATIONS, AND CHANGES IN OWNERSHIP INTERESTS Answers to Questions 1

A partnership has a characteristics as foo!s" a#

2

O!ne$ %& t!o or 'ore persons# persons# It It can(t %e sai$ as a partnership partnership if it is o!ne$ o!ne$ %& %& a sin)e sin)e person# person#

%#

M*t*a a)enc&# It 'eans e+er& partner act as an a)ent in the partnership# partn ership# The action of e+er& e+er& partner on %ehaf of the partnership partners hip can %in$ the other partners# partn ers#

c#

ni'ite$ ia%iit& ia%iit&## E+er& E+er& partner partner is ia%e ia%e for for the partnership partnership $e%ts# $e%ts# If If the partnership partnership asset asset is not not s*fficient to retire the $e%ts, partners sho*$ *se their persona asset to retire the partnership $e%ts#

Artices of partnership e-pain the a)ree'ent of partners in the partnership# The artice sho*$ inc*$e the a)ree'ent of" $#

The t&pes t&pes of pro$*cts pro$*cts an$ ser+ices ser+ices to %e pro+i$e$ pro+i$e$ an$ an$ other $etais of the %*siness( %*siness(ss operations# operations# E-a'pe" a resta*rant partnership pro+i$es +ariet& of tra$itiona foo$s an$ $rin.s to the c*sto'ers#

e. Each partner(s ri)hts an$ responsi%iities in con$*ctin) the %*siness# E-a'pe" an acti+e partner has responsi%iities to %eco'e the 'ana)ers of the partnership# f. Each partner(s initia in+est'ent inc*$in) the +a*e assi)ne$ to noncash asset in+est'ents# E-a'pe" Partner A initia& in+ests / 0,111 cash an$ / 0,111 in the for' of +ehice# )#

A$$itiona A$$itiona in+est'ent in+est'ent con$itions# con$itions# E-a'pe" E-a'pe" Each Each partner 'a& 'a& a$$ a$$ 'ore in+est'ent in+est'ent in the for' for' of cash or other assets nee$e$ %& the partnerships#

h#

Asset Asset !ith$ra!a !ith$ra!a pro+isio pro+isions# ns# E-a'pe" E-a'pe" Each partner has a ri)ht to !ith$ra! /211 cash cash each each 'onth cre$ite$ to the partner capita acco*nt#

i#

Profit3 Profit3 an$ oss3 oss3sharin) sharin) for'*as for'*as## E-a'pe" Profit Profit an$ oss oss are are share$ share$ %ase$ %ase$ on on the a+era)e a+era)e capita %aance of each partner#

4#

Proce$*res for $isso+in) the partne rship# E-a'pe" The partnership partnershi p !i %e $isso+e$ if there is ne! partner or an& of the partners !ith$ra!#

3

In+est In+est'en 'entt in a partners partnership hip can %e in the for' of non3cash non3cash assets# assets# The non3cash non3cash assets assets sho*$ sho*$ %e appraise$ to $eter'ine the +a*e that sho*$ %e reco)ni5e$ %& the partnership# It sho*$ %e appraise$ %& in$epen$ent appraisa# Ho!e+er, as a practica 'atter, it 'a& %e $eter'ine$ %& the a)ree'ent of the partners#

4

Saar& an$ interest ao!ances are inc*$e$ in so'e partnership a)ree'ents in or$er to re!ar$ partners for for the ti'e an$ effo effort rt that the& the& $e+ot $e+otee to partners partnership hip %*s %*sine iness ss 6saar& 6saar& ao!anc ao!ances7 es7 an$ for for capita capita in+est'ents 6interest ao!ances7 that the& 'a.e in the %*siness#

5

Saar& ao!ances to partners are not e-penses of a partnership# Rather, the& are a 'eans of reco)ni5in) the efforts of in$i+i$*a partners in the $i+ision of partnership inco'e#

Copyright © 2015 Pearson Education Limited

16- 2

Partnerships—Formation, Operations and Changes in Ownership Interests

6

When profits are $i+i$e$ in the ratio of capita %aances, capita %aances sho*$ %e co'p*te$ on the %asis of !ei)hte$ a+era)e capita %aances in the a%sence of e+i$ence that another interpretation of capita %aances is inten$e$ int en$e$ %& the partners#

7

An in$i+i$*a partner 'a& ha+e a oss fro' his share of partnership operatin) acti+ities e+en tho*)h the partnership partnershi p has inco'e# This sit*ation res*ts if priorit& aocations to other partners e-cee$ partnership partners hip net inco'e# For e-a'pe, if net inco'e for the A an$ 8 Partnership is /0,111 an$ profits are $i+i$e$ e9*a& after a saar& ao!ance of /:,111 to A, A !i ha+e partnership inco'e of /;,011 an$ 8 !i ha+e a partnership oss of /2,011#

8

Partnership $issociation *n$er the nifor' Partnership Act is the chan)e in the reation of the partners ca*se$ %& an& partner ceasin) to %e associate$ in the carr&in) on of the %*siness, as $istin)*ishe$ fro' the !in$in) *p of the %*siness# Th*s, the assi)n'ent of a partnership interest to a thir$ part& %& one of the partners $oes not, %& itsef, $isso+e the partnership %eca*se the assi)nee $oes not %eco'e a partner part ner *ness * ness accepte$ as a partner %& the contin*in) partners#

9

The sae of a partnership interest to a thir$ part& $isso+es the o$ partnership if the contin*in) partners accept the thir$ part& p*rchaser as their partner# In this case, the reation a'on) the partners is chan)e$ an$ a ne! partnership a)ree'ent is necessar&#

10

When a ne! partner ac9*ires an interest %& p*rchase p*rchase fro' e-istin) partners, the partnership recei+es recei+es no ne! assets assets %eca* %eca*se se the pa&'en pa&'entt for for the ne! partner(s partner(s interest interest is $istri% $istri%*te *te$ $ to the o$ partners# partners# Aternati+e&, an in+est'ent in a partnership increases the net assets of the partnership# This $ifference is i'portant in acco*ntin) for the a$'ission of a ne! partner#

11

The a$'ission of a ne! partner 'a& %e recor$e$ %& the goodwill approach 6or re+a*ation approach7 or %& the bonus approach 6or nonre+a*ation approach7#

12

The )oo$!i proce$*re for recor$in) the a$'ission of a ne! partner is %est $escri%e$ as a re+a*ation approach approach %eca*se %eca*se i$entifia%e i$entifia%e assets an$ ia%iities that are o+er or *n$er+a*e$ *n$er+a*e$ are a$4*ste$ a$4*ste$ to their fair +a*es %efore the *ni$entifia%e asset )oo$!i is recor$e$# For e-a'pe, if a ne! partner(s in+est'ent refects the fact that an$ o!ne$ %& the o$ partnership is *n$er+a*e$, it !o*$ %e 'isea$in) to recor$ the a'o*nt of re+a*ation as )oo$!i, rather than as a re+a*ation of the an$ acco*nt#

13

A %on*s proce$*re for recor$in) an in+est'ent in a partnership in+o+es a$4*stin) the partnership capita acco*nt to the e-tent necessar& to 'eet the ne! partnership a)ree'ent !itho*t a re+a*ation of the assets an$ ia%iities of the o$ partnership# If a ne! partner recei+es a capita cre$it in e-cess of his or her in+est'ent, the e-cess is a %on*s to the ne! partner# partner# A %on*s to a ne! partner is char)e$ char)e$ a)ainst the o$ partners( capita capita %aances %aances in reation to their o$ profit sharin) ratios# If a ne! partner(s in+est'ent e-cee$s his or her capita cre$it, the e-cess is a %on*s to the o$ partners# A %on*s to the o$ partners is cre$ite$ to the o$ partners( capita %aances in accor$ance !ith the o$ partners( profit sharin) ratios#

14

The a'o*nts recei+e$ %& the in$i+i$*a partners in fina i9*i$ation !i %e the sa'e *n$er the %on*s an$ )oo$!i proce$*res pro+i$e$ that the reati+e profit an$ oss sharin) ratios of the o$ partners re'ain *nchan)e$ in the ne! partnership an$ that the ne! partners( capita interest an$ profit an$ oss sharin) ratio are ai)ne$#

15

Parts a an$ % ass*'e that the partnership assets are to %e re+a*e$ *pon the a$'ission of 8o% into the partnership# partnershi p# Goo$!i !o*$ %e recor$e$ if i$entifia%e assets an$ ia%iities are e9*a to their fair +a*es an$ 2# /21,111 ¸ <0= > /21,111 ? o$ capita@ or <# O$ capita ¸ 0= > /21,111 ? o$ capita@ or


Chapter 16

16-3

B# An in$e in$epe pen$ n$ent ent ass asses ess' s'en entt of earn earnin) in) po! po!er er or othe otherr fac facto tors rs in$ic in$icate ate )oo$ )oo$!i !i# # O$ partnership assets !o*$ %e !ritten $o!n if 2# /21,111 ¸ <0=  /21,111 ? o$ capita@ or <# O$ capita ¸ 0=  /21,111 ? o$ capita@ or B# An in$e in$epe pen$ n$ent ent ass asses ess' s'en entt of earn earnin) in) po!e po!err or othe otherr fact factor orss in$ic in$icate ate tha thatt partne partnersh rship ip asse assets ts are are o+er+a*e$# Parts c an$ $ ass*'e that partnership assets are not to %e re+a*e$ *pon the a$'ission of 8o% into the partnership# A %on*s to the o$ partners !o*$ %e recor$e$ if <0= ´ 6/21,111 ? o$ capita7 is ess than /21,111# A %on*s to 8o% !o*$ %e recor$e$ if <0= ´ 6/21,111 ? o$ capita7 is )reater than /21,111#



16- 4

SOLUTIONS TO EXERCISES Solution E16-1

1.

Initia Initial l inve invest stmen ments ts of of part partner ners s are are reco recorde rded d at at fair fair valu value e inst instea ead d of cost.

ichelle Cash

# $50%000

Land "ruc(

# &00%000

# '50%000

# 10%000%000

# 10%000%000 # )%500%000

# 1%&00%000

# 1%&00%000

# 200%000

# 200%000

# )%*50%000

# 11%+00%000

# 1+%'50%000

&'.0',

)2.*&,

100.00,

Inventory Percentage

"otal

# )%500%000

Computer "otal

!evina

-sing onus approach% each partner /ill have eual capital alance from the total investments. ichelle capital #1+%'50%00023 !evina capital #1+%'50%00023

#*%&'5%000 #*%&'5%000

2. "he partnership partnership fair value value can e determined determined from partner partner that doesn4t doesn4t ring good/ill to the partnership% /hich is !evina. Partnership fair value #11%+00%000  50,3

#2&%)00%000

Each partner /ill have eual capital alance ic ichell elle cap capital #2& #2&%)00% 00%000 0023 !evina ca capital # #2&%)00%00023

#11% 11%+00% 00%000 #11%+00%000

&. "otal partnership euity after revaluation "otal partnership euity efore revaluation ood/ill


#2&%)00%000 #1+%'50%0003 # $%+50%000

Chapter 16

16-5

Solution E16-2

Computation of 6ev4s onus7 Let 6 6 6 1.16 6

8 8 8 8 8

onus 10, ´ #1*+%000 9 63 #1*%+00 9 .16 #1*%+00 #1+%000 :chedule to ;llocate Partnership Income ;rn

#1*+%000 1+%0003 1+0%000 1+0%0003 0

6ev

Car

#1+%000 #'2%000 #'2%000

'2%000 #*0%000


# &)%000 # &)%000


16- 6

Solution E16-3

el 2012 income to divide #25%000 9 #$%0003 :alary to el =emainder to divide !ivided eually

2011 income understatement !ivided in the 2011 )07$0 ratio Income allocation

#21%000 1+%0003 &%000 &%0003 0 # $%000 $%0003 0

!av

#1+%000 1%500

# 1%500

2%$00 #21%*00

1%)00 # &%100


Chapter 16

16-7

Solution E16-4

:chedule to ;llocate Partnership Income for 2011

Income to distriute :alary allocation Interest on capital ? Loss to divide !ivided eually Income to partners ?

6alance #2+%000 $2%0003 52%0003 ))%0003 ))%000 0

!an #

>e >en

999 21%000

6ai

# 1+%000 1)%000

22%0003 #1%0003

22%0003 #12%000

#2$%000 15%000 22%0003 #1'%000

Inte Intere rest st on aver averag age e cap capit ital al7 7

!an

@anuary 1% 2011 6alances #200%000 2$0%000 200%000

12 year 8 ´ 1$ year 8 ´ 1$ year 8 ´

;verage Capital #100%000 )0%000 50%000

Interest on Capital

10, 8

#21%000

10, 8

1)%000

10, 8

15%000 #52%000

#210%000

´

>en

# 1)0%000

´

1 year 8

#1)0%000

´

6ai

# 150%000

´

1 year 8

#150%000

´



16- 8

Solution E16-5

1. Capital Capital alanc alances es for oth oth partners partners7 7

Aero Capit Capital al al alanc ances es @an @anuar uary y 1% 201& 201& ;dditional in investments a arch 1 Capital alances arch 1

#'%50 #'%500%0 0%000 00.00 .00 #$00%000.00 #'%*00%000.00

;dditional investments ay 1 Capital alances ay 1 Aithdra/al Bctoer 1

;my #)%000%000.0 0

#'%*00%000.00 #1%&00%000.00 3

#)%000%000.0 0 #150%000.00 #)%150%000.0 0

Capital alances Bctoer 1 ;dditional investments
#)%)00%000.00

#)%150%000.0 0

Capital a alances
#)%)00%000.00

#'00%000.00 #)%+50%000.0 0

Capital a alances !e !ecemer &1 &1

#2%000%000.00 #+%)00%000.00

Aeighted average capital of Aero capital #'%500%000  2  12 #'%*00%000  '  12 #)%)00%000  &  12 #+%)00%000  0 12

Aeighted average #)%000%000  $  #)%150%000  '  #)%+50%000  1 

capital of ;my capital 12 12 12

#)%+50%000.0 0

#1%250%000 #$%)0+%&&& #1%)50%000 #0 #'%50+%&&&

#2%000%000 #&%5+'%500 #5'0%+&& #)%15+%&&&

2. Profit allocated to Aero #*%000%000  #'50+%&&&  #'%50+%&&& D #)%15+%&&&33 Profit allocated to ;my #*%000%000  #)%15+%&&&  #'%50+%&&& D #)%15+%&&&33

#$%*$$%512

#$%055%$++

Solution E16-6 1

6en capital

#&50%000 Pet capital Copyright © 2015 Pearson Education Limited

#&50%000

Chapter 16

16-9

"o record assignment of half of 6en4s capital account to Pet. 2

"he total capital of 6I Entertainment alley remains at #1%$+0%000. "he amount paid y Pet to 6en does not affect the partnership and Pet does not ecome a partner /ith the assignment of half of 6en4s interest.



16- 10

Solution E16-7

1.

"ota "otal l eui euity ty of part partne ners rshi hip p efo efore re reva revalu luat atio ion n #&%000%000 D #2%500%000 D #)%000%0003

#11% #11%50 500% 0%00 000 0

"o get capital interest of #$%)00%000 $0,  #11%500%0003% Ping has to invest for #)%000%000 good/ill to old partners3 air value value of the partnership partnership #)%000%000 #)%000%000  $0,3 #15%000%000 #15%000%000 "otal "otal eu euity ity of part partne nersh rship ip ef efore ore reval revaluat uatio ion n #11%5 #11%500 00%00 %000 0 ood/ill #&%500%000 ;llocation of good/ill7 "o Liu #&%500%000  $0,3 "o Ping #&%500%000  )0,3 Capital alance of each partner7 Liu #&%000%000 D #1%$00%0003 Aang #2%500%000 D #2%100%0003 Ping 2.

#1%$00%000 #2%100%000 #&%500%000 #$%$00%000 #$%)00%000 #)%000%000

Ping Ping inte intere rest st in the the par partn tner ersh ship ip #11 #11%5 %500 00%0 %000 00  $0, $0,3 3

#$%) #$%)00 00%0 %000 00

"otal "otal onus onus to old part partners ners #)%000 #)%000%000 %000 9 #$%)00% #$%)00%0003 0003

#1%$00%0 #1%$00%000 00

Capital alance of each partners7 Liu #&%000%000 D $0,  #1%$00%00033 Aang #2%500%000 D )0,  #1%$00%00033 Ping #11%500%000  $0,3

#&%5)0%000 #&%&$0%000 #$%)00%000

"otal

#11%500%000

Solution E16-8

@ournal entries to admit @oh to the 6o/on partnership7 ood/ill

# $5%000

6o/ capital # 2'%000 on capital 1+%000 "o record good/ill computed as follo/s7
# &*%000 &)%000

@oh capital #'5%000 "o record capital transfer to @oh7 #*0%000 D #2'%0003& from 6o/ and #*0%000 D #1+%0003& from on.


Chapter 16

16-11

Solution E16-9 1

Investment of #100%000 in partnership /ith revaluation7 Cash ood/ill

#100%000 20%000

Aal capital #120%000 "he ne/ partnership valuation is computed as7 old capital of #$+0%000+0, retained interest 8 #)00%000 ne/ capital. ood/ill is computed as7 ne/ capital of #)00%000 9 #5+0%000 the old capital plus investment3 8 #20%000 good/ill. 2

Investment of #1$0%000 in partnership /ith revaluation7 ood/ill

#+0%000 :ip capital #2$%000 @og capital $0%000 =un capital 1)%000
Cash

#1$0%000 Aal capital "o record Aal4s investment in the partnership.


#1$0%000


16- 12

Solution E16-10 1

Investment of #120%000 in the partnership /ith no revaluation7 #$00%000 old capital D #120%000 additional investment 8 #520%000 6o4s interest 8 #520%000 ´ 25, 8 #1&0%000 "herefore% the old partners are giving a onus to 6o of #10%000. Cash an capital Eme capital ot capital

#120%000 &%)00 2%$00 $%000

6o capital #1&0%000 "o record 6o4s admission to a 25, interest in the partnership capital and earnings. Capital accounts after 6o4s admission to the partnership7 an Eme ot 6o

2

capital #1$0%000 9 #&%)003 capital #100%000 9 #2%$003 capital #1)0%000 9 #$%0003 capital

#1&)%$00 *'%)00 15)%000 1&0%000 #520%000

"he profit and loss sharing ratios of the ne/ partnership /ill depend on the provisions of the ne/ partnership agreement. If the old partners /ish to maintain their old partnership relationship% one possile division /ould e to reduce each of the old partners ratio y 25, in other /ords% a ne/ ratio of 2'71+7&07253. >o/ever% if the issue is not addressed in the ne/ partnership agreement% the partners /ill share profits eually% 25725725725% in accordance /ith the -niform Partnership ;ct.


Chapter 16

16-13

Solution E16-11

=etirement of
#1$0%000

#1'0%000

Cash "o record payment to
#1'0%000

Solution E16-12 Entry to write-up assets to fair value

;ssets

#200%000 6ec capital !ee capital Lyn capital

#100%000 +0%000 20%000

Entry to record settlement with Dee

!ee capital 6ec capital 5) ´ #&0%000 ecess payment3 Lyn capital 1) ´ #&0%000 ecess payment3 Loan to !ee Cash

#&+0%000 25%000 5%000 #100%000 &10%000

6ec capital #&00%000 D #100%000 9 #25%0003

#&'5%000

Lyn capital #100%000 D #20%000 9 #5%0003

#115%000



16- 14

Solution E16-13 1

Income ;llocation :chedule Fat
2

#&0%000 1%5003 2+%500 25%0003 &%500 &%5003 909

Edd

1%500

"otal 1%500

10%000

15%000

25%000

1%'50 #1&%250

1%'50 #1)%'50

&%500 #&0%000

=evenue and Epense :ummary #&0%000 Fat Capital Edd Capital ;llocate partnership net income for the year to the partners. Fat Capital

#1&%250 #1)%'50

#15%000 Fat !ra/ing

#15%000

Edd Capital

#10%000 Edd !ra/ing Close the dra/ing accounts to the capital accounts.

3

#10%000

Capital ;ccounts K & E !"tn#"$%i

:tatement of Partners4 Capital or the year ended !ecemer &1 2011

Capital alances @anuary 1% 2011 ;dd7 ;dditional investments !educt7 Aithdra/als !educt7 !ra/ings ;dd7
Fat #$*)%'50 5%000 0 15%0003 1&%250 #500%000


Edd #2)+%250 5%000 0 10%0003 1)%'50 #2+0%000

Chapter 16

16-15

Solution E16-14 1

Galuation of assets and liailities as implied y ecess payment to 6o7 6uilding #10%000 ood/ill $0%000 6yd capital # 15%000 6o capital 10%000 !ar capital 20%000 us capital 5%000 "o record revaluation of uilding and good/ill implied y the ecess payment to 6o on his retirement #10%000 ¸ 20, 8 #50%000 revaluation3. 6o capital

#&5%000 Cash # &5%000 "o record cash payment to 6o on his retirement from the usiness.

2


#

&5%000


16- 16

Solution E16-15 1

a 6il4s 6il4s contri contriutio ution n #20%00 #20%000 0 D #)0%00 #)0%000 0 D #15%00 #15%000 0 9 #&0%000 #&0%0003 3 Fen4s contriution "otal tangile contriutions

# )5%000 )5%000 50%000 #115%000

Fen4s contriution #50%000.$ interest 8 #125%000 total capital "otal capital ased on Fen4s contriution #125%000 less amount contriuted y Fen and 6il #115%000 8 #10%000 good/ill 2

c @ay4s investment of #)5%000 is greater than his capital credit of 1& of #1'5%000H thus% there is good/ill to the old partners.
1& 8 #1*5%000

¸

# 10%000 10%000

3

c "otal capital #1'0%000 D #200%000 D #200%0003 8 #5'0%000 en4s interest #5'0%000 ´ 1& 8 #1*0%000 "herefore% "in and Ae receive a #10%000 onus% shared eually.

4

c #*0%000 investment J 25, ´ #100%000 D #+0%000 D #*0%0003% thus% there is good/ill to the old partners.

5

#&)0%000 2'0%0003 # *0%000

in capital #100%000 D 50, ´ #*0%000 good/ill3 =ho capital #+0%000 D 50, ´ #*0%000 good/ill3 Che capital "otal capital

#1$5%000 125%000 *0%000 #&)0%000

 Payment to in at retirement Capital account efore recording share of good/ill in4s share of good/ill

#200%000 1'0%000 # &0%000

"otal good/ill for partnership #&0%000.&3

#100%000

"otal assets efore in4s retirement #2$0%000 cash D #&)0%000 other assets D #100%000 good/ill3 Less7 Payment to in on retirement

#'00%000 200%000


Chapter 16

"otal assets after in retires


16-17

#500%000


16- 18

Solution E16-16 1

a "on capital Blg capital

# &0%000 '0%000 #100%000

Capi Capita tal l Inte Intere rest st &0, '0,

Inco Income me Inte Intere rest st 50, 50,

:ince capital and income interests /ere not aligned at the time of :hi4s purchase% the #$0%000 payment to "on does not provide a asis for revaluation. "hus% half of "on4s #&0%000 capital alance should e transferred to :hi. 2

a Implied total valuation of partnership ased on !un4s #)0%000 payment to partners #)0%000.$3

#150%000

Entry to record goodwill:

ood/ill

#&0%000 Lin capital Kue capital

# 15%000 15%000

Entry to transfer equal capital amounts to Dun:

Lin capital Kue capital !un capital

#&0%000 &0%000 # )0%000

Capital accounts after admission of Dun:

Lin capital #50%000 D #15%000 9 #&0%0003 Kue capital #'0%000 D #15%000 9 #&0%0003 !un capital "otal capital 3

c Bld capital of #120%000 ¸ 2& interest retained y old partners 8 #1+0%000 capitaliation. #1+0%000 9 #1'0%000 old capital and ne/ investment 8 #10%000 good/ill.

cC
# &5%000 55%000 )0%000 #150%000

Bld Capital # '0%000 50%000 #120%000

;dmission of Ba(

#)0%000 #)0%000

 6onus to Ba( 8 #1'0%000&3 9 #50%000 8 #)%))' onus

cC
Bld Capital # '0%000 50%000 MMMMMMMM #120%000

;dmission of Ba( #&%&&&3 &%&&$3 5)%))' #50%000


Chapter 16


16-19


16- 20

Solution E16-16 '(ontinu#)* 5

a Capital alances =evalue assets ;dNusted alances Ecess payment to Car 2050 Ending a alances

6en #100%000 20%000 120%000

Car #200%000 &0%000 2&0%000

!as #200%000 50%000 250%000

$%0003 #11)%000

1$%000 #2$$%000

10%0003 #2$0%000


"otal #500%000 100%000 #)00%000

Chapter 16

16-21

Solution E16-17 O6ased on ;ICP; 1



2

a

3

a Aithdra/al Less7 ;dditional investment
#1&0%000 25%000 105%000 )0%000 # $5%000

"otal net income #$5%000.& Pla4s interest3

#150%000

4

a o Loss Interest :alaries Loss to divide !ivided eually

5

# &&%0003 22%0003 50%0003 105%0003 105%000 0

re

# 12%000 &0%000

#

)%000

&5%0003 # '%000

&5%0003 #2*%0003

 "he onus to 6ec is #)0%000% computed as follo/s7 6 6 6 1.256 6

8 8 8 8 8

onus .25#&00%000 9 63 #'5%000 9 .256 #'5%000 #)0%000


>o/ #

$%000 20%000

&5%0003 #11%0003


16- 22

Solution E16-18 1

2

O6ased on ;ICP;

c Bld capital at fair value 8 #&00%000 8 +0, of ne/ capital
Elt !on Fra

Capital Changes #'%0003 &%0003 )0%000 #50%000

#1&0%000 3

#&'5%000 &00%0003 # '5%000

 Ail4s #$0%000 capital investment J capital credit #1$0%000 good/ill to old partners.

´

#1)0%000 1$0%000 # 20%000

25,3 "hus%

Revaluation entry:

ood/ill Eli capital #20%000 eo capital #20%000 !ic capital #20%000

#20%000 # 12%000 )%000 2%000

)0,3 ´ &0,3 ´ 10,3 ´

Admission of Wil:

Eli capital #*2%000 eo capital #$)%000 !ic capital #22%000 Ail capital

#2&%000 11%500 5%500

25,3 ´ 25,3 ´ 25,3 ´

# $0%000

New capital alances:

Eli capital #*2%000 9 #2&%0003 eo capital #$)%000 9 #11%5003 !ic capital #22%000 9 #5%5003 Ail capital "otal capital 4

 Purchase price paid y :id Capital transferred to :id #$$$%000 Comined gain to
# )*%000 &$%500 1)%500 $0%000 #1)0%000

20,3

´

#1&2%000 ++%+00 # $&%200

6ecause capital alances are not aligned /ith profit and loss sharing ratios% the #++%+00 capital transferred to :id /ill e charged to
d Bld capital #)0%000 D #20%0003 Copyright © 2015 Pearson Education Limited

# +0%000

Chapter 16

16-23

;dditional capital invested y ra
15%000 *5%000 20, # 1*%000

E16-18 '(ontinu#)* 6

a Ece Ecess ss paym paymen ent t to !i !i O#' O#'$% $%00 000 0 9 #2 #210 10%0 %000 00 9 #1)0 #1)0%0 %000 003 3

# 2$%0 2$%000 00

Implied good/ill #2$%000 ecess payment.2 profit and loss interest of !ion3 #120%000 7



Per oo(s ;sset revaluation a 6alance after revaluation ood/ill recognition  6alance efore retirement =etirement of Ail a 

20, Ail # '0%000 12%000 +2%000 20%000 102%000 102%0003 0

20, 6ro #)5%000 12%000 ''%000 20%000 *'%000

)0, Lo/ #150%000 &)%000 1+)%000 )0%000 2$)%000

#*'%000

#2$)%000

;sset revaluation7 #&)0%000 9 #&00%000 8 #)0%000 ood/ill7 #102%000 9 #+2%0003.2 8 #100%000


"o "otal #2+5%000 )0%000 &$5%000 100%000 $$5%000 102%0003 #&$&%000


16- 24

Solution E16-19 K"!+ L!,+ !n) !n !"tn#"$%i

:tatement of Partners4 Capital for the year ended !ecemer &1% 2011

Capital @anuary 1% 2011 ;dditional investment Aithdra/als

Fra

Lam

an

"otal

#)5%000 $%000

#'5%000

#'0%000

#210%000 $%000 *%0003

5%0003

$%0003

)*%000 11%500

'0%000 2&%500

))%000 12%000

205%000 $'%000

Capital !ecemer &1% 2011

#+0%500

#*&%500

#'+%000

#252%000

K"!+ L!,+ !n) !n !"tn#"$%i

:chedule of Income ;llocation for the year ended !ecemer &1% 2011
Fra

Lam

an

Income to divide :alary to Lam Interest allo/ances

#$'%000 11%0003 21%0003

# )%500

#11%000 '%500

# '%000

=emainder to divide !ivided eually

15%000 15%0003

5%000

5%000

5%000

#11%500

#2&%500

#12%000

Income allocation

0


Chapter 16

16-25

Solution E16-20 1

If assets are not revalued7

ro >am Iot

6efore ;d ;dmission of Iot

"ransfers on ;dmissi ssion of Iot Iot

Capital 6alances ;fter ;dmis mission ion

# $5%000 )5%000

#22%5003 &2%5003 55%000 0

# 22%500 &2%500 55%000 #110%000

#110%000 If assets are revalued7

ro >am Iot

Capital 6alances 6efore =ev =evaluat uation

=evaluation #& #&0%00 %0003

Capital 6alances ;fter =evaluation

# $5%000 )5%000

#1&%500 1)%500

# 5+%500 +1%500

#110%000

#&0%000

#1$0%000

"ransfers to Iot

Capital 6alances ;fter ;dmission

#2*%2503 $0%'503 '0%000 0

# 2*%250 $0%'50 '0%000 #1$0%000

2

:ince old partners transferred 50, of their interests in future profits% profits should e divided7 22.5, to ro% 2'.5, to >am% and 50, to Iot. "he partners can% of course% agree to any profit and loss sharing arrangement that they choose.

3

In the asence of a ne/ partnership agreement% profits /ill e divided eually.



16- 26

Solution E16-21

ethod 17 !onus to retiring partner Cas capital !on capital Ear capital

#1$0%000 *%000 12%000

Cash #1)1%000 "o record Cas4s retirement /ith a #21%000 onus% shared y !on and Ear in their relative profit and loss sharing ratios &' and $'% respectively3. ethod 27 "oodwill to retiring partner only Cas capital ood/ill

#1$0%000 21%000

Cash #1)1%000 "o record Cas4s retirement and to record the #21%000 ecess payment to Cas as good/ill. ethod &7 "oodwill implied y e#cess payment ood/ill

# '0%000

Cas capital # 21%000 !on capital 21%000 Ear capital 2+%000 "o record good/ill implied y the ecess payment to Cas on her retirement. ood/ill is computed as the ecess payment divided y Cas4s profit and loss sharing ratio #21%000&0,3. Cas capital

#1)1%000

Cash "o record retirement of Cas.


#1)1%000

Chapter 16

16-27

SOLUTIONS TO RO.LES Solution 16-1

Preliminary computation 6eginning capital #)*%000 D #+5%500 D #2$5%5003 Capi Capita tal l adNu adNust stme ment nts7 s7 ;ddi ;dditi tion onal al inve invest stme ment nt less less /ith /ithdr dra/ a/al als s Ending capital
#$00%000 $%0 $%000 003 3 &*)%000 $+1%0003 # +5%000

Ell+ /!"+ !n) !"

:tatement of Partnership Capital for the year ended !ecemer &1% 2011

Capital alance @anuary 1 ;dd7 ;dditional investment !educt7 :alary allo/ances
Ell #)*%000

ar #+5%500

ar #2$5%500 20%000

12%0003 5'%000

12%0003 '&%500

2)5%500

"otal #$00%000 20%000 2$%0003 &*)%000

2$%200 #+1%200

2$%200 #*'%'00

&)%)00 #&02%100

+5%000 #$+1%000

Ell

ar

ar

#12%000

#12%000

12%200 #2$%200

12%200 #2$%200

Income allocation schedule7 Income to divide :alary allo/ances =emainder to divide !ivided 207207)0 Income allocation

"otal #+5%000 2$%0003 )1%000 )1%0003 0


# &)%)00 # &)%)00


16- 28

Solution 16-2 1

o"+ O$(+ !n) T"# !"tn#"$%i

6alance :heet at @anuary 2% 2011 Cash #20%000 D #*5%0003 ;ccounts receivale — net Inventories Plant assets — net #120%000 D #120%0003 ood/ill "otal assets

#115%000 100%000 200%000 2$0%000 $0%000a #)*5%000

;ccounts payale or capital 1& interest3 #120%000 D #+5%000  D #20%0003 Bsc capital 1& interest3 #100%000 D #+5%000  D #20%0003 "re capital 1& interest3 "otal euities

# 50%000

a

 c 2

225%000 205%000 215%000c #)*5%000

"re4s #215%000 ¸ 1& 8 #)$5%000 total capitaliation capitaliation #)$5%000 9 #)05%000 fv of old assets D "re4s investment 8 #$0%000 good/ill. #$0%000 good/ill is divided eually et/een or and Bsc =evaluation =evaluation of assets to fair value #1'0%000 divided eually et/een or and Bsc3 "re4s investment #*5%000 cash D #120%000 uilding3 8 #215%000 o"+ O$(+ !n) T"# !"tn#"$%i

6alance :heet at @anuary 2% 2011 Cash #20%000 D #*5%0003 ;ccounts receivale — net Inventories Plant assets — net #100%000 D #120%0003 "otal assets ;ccounts payale or capital 1& interest3 #120%000 D #&5%000 a3 Bsc capital 1& interest3 #100%000 D #&5%000 a3 "re capital 1& interest3 "otal euities a

#115%000 100%000 50%000 220%000 #$+5%000 # 50%000 155%000 1&5%000 1$5%000 #$+5%000

"re is paying a onus to or and Bsc ecause his investment of #215%000 #*5%000 cash and #120%000 uilding3 is /orth more than a 1& interest in the oo( value of the comined assets #215%000 D #220%0003. "he #'0%000 onus is evenly divided et/een or and Bsc ased on their profit sharing ratios. "he Nournal entry to record "re4s admission in the partnership is7 Cash *5%000 6uilding 120%000 "re Capital 1$5%000 or Capital &5%000 Bsc Capital &5%000


Chapter 16



"re4s investment #*5%000 cash D #120%000 uilding3 8 #215%000 6oo( value plus "re4s investment is #220%000 D #215%000 8 #$&5%000 "re gets a 1& interest or #1$5%000.


16-29


16- 30

Solution 16-3 $% !n) .!" !"tn#"$%i !"tn#"$%i

Income !istriution :chedule for 2011
#105%000 *%0003 *)%000 12%0003 +$%000

1$%0003 '0%000 '0%0003 0

;sh

6ar

# $%000

# 5%000

"otal #

*% *%000

12%000

12%000

1$%000

1$%000

&5%000 #)5%000

&5%000 #$0%000


'0%000 #105%000

Chapter 16

16-31

Solution 16-4 1

Profit allocation schedule ;le
2

#12%0003 10%0003 22%0003 )%0003 1 10%0003 1 11%0003 $*%0003 $*%000 0

Car

Eri

# 10%000

)%000 # 10%000 # 11%000 1$%'003 # 1%&00

1$%'003 # $%'003

1*%)003 # +%)003

l#+ C!"+ !n) E"i !"tn#"$%i

:tatement of Partnership Capital for the year ended !ecemer &1% 2011 Capital @anuary 1% 2011 ;dd7 ;dditional Investments !educt7 Aithdra/als !educt7 !ra/ings
;le # )0%000

Car # *0%000

)0%000

&0%000 120%000

20%000 1&0%000 10%0003

+%0003 52%000 1%&00

120%000 $%'003

120%000 +%)003

# 5&%&00

#115%&00

Eri #110%000

#111%$00

"otal #2)0%000 50%000 &10%000 10%0003 +%0003 2*2%000 12%0003 #2+0%000

Correcting entry7 Eri capital

#1%200

;le capital #1%100 Car capital 100 "o correct capital accounts for error in loss allocation7 Correct loss allocation Less7 ;ctual loss allocation ;dNustment

;le # 1%&00 2003 # 1%100

Car #$%'003 $%+00 # 100


Eri #+%)003 '%$00 #1%2003


16- 32

Solution 16-5 1.

6onus calculation7 6 8 0.2 #)00%000 9 #200%000 Q 63 6 8 #120%000 9 #$0%000 9 0.26 6 8 #+0%000 Q 0.26 1.2 6 8 #+0%000 6 8 #))%))' INCOE LLOCTION SCEULE

;hmed 20,
# )00%000

6onus to Farim =emainder to divide :alary allo/ances to

9# ))%))'

;hmed and Famal =emainder to divide !ivided ase on ratio =emainder to divide
2

Famal &0,

Farim 50, # ))%))'

"otal # ))%))'

# 5&&%&&&

9# 200%000

# 100%000

#100%000

#200%000

# ))%))'

#100%000

# 1))%))'

#&&&%&&&

# 1))%))'

#200%000

# 2&&%&&$

#)00%000

# &&&%&&& 9# &&&%&&& # 0

9# 10%000

;hmed and Famal =emainder to divide !ivided ase on ratio =emainder to divide
9#200%000

;hmed 20,

Famal &0,

# 100%000

#100%000

9# $2%000

9#)&%000

9#105%000

# 5+%000

# &'%000

9#105%000

Farim 50,

"otal

#200%000

9#210%000 # 210%000

9#210%000

# 0


9# 10%000

Chapter 16

16-33

Solution 16-6 1

Computation of reported capital alances7 @on Fel Capital @anuary 2% 2011 #&0%000 #&0%000 ;dd7 Investments for 2011 Less7 Aithdra/als for 2011 5%0003 $%0003
Income to allocate Interest allo/ances7 @on #&0%000 ´ 10,3 Fel #&0%000 ´ 10,3 la #&0%000 ´ 10,3 =emainder to divide :alary to @on =emainder to divide !ivided eually Income allocation

S(%#)ul# .

Income to allocate Interest allo/ances7 @on #&)%000 ´ 10,3 Fel #&0%000 ´ 10,3 la #&*%000 ´ 10,3 =emainder to divide :alary to @on =emainder to divide !ivided eually Income allocation S(%#)ul# C

Income to allocate Interest allo/ances7 @on #5&%100 ´ 10,3 Fel #&1%500 ´ 10,3 la #&)%$00 ´ 10,3 =emainder to divide

@on

la #&0%000 5%000 &5%000 $%000 &*%000 +%0003 &1%000 5%$00 &)%$00 )%000 2%0003 $0%$00 )%*$0 #$'%&$0

"otal # *0%000 5%000 *%0003 +)%000 1*%000 105%000 5%000 11%0003 **%000 22%000 121%000 )%000 )%0003 121%000 2*%000 #150%000

Fel

la

# &%000 # &%000 #

&%000

#

1%000 $%000

'%000 1%000 #11%000

@on

1%000 # $%000

Fel

la

# &%)00 # &%000 #

&%*00

#

1%500 5%$00

'%000 1%500 #12%100 @on

1%500 # $%500 Fel

la

# 5%&10 # &%150


#

&%)$0


16- 34

:alary to @on =emainder to divide !ivided eually Income allocation

'%0003 *%*00 *%*003 0

'%000 &%&00 #15%)10

&%&00 # )%$50


#

&%&00 )%*$0

Chapter 16

16-35

Solution 16-6 continued3 2

Correct income and capital account alances7

=eported income -nderstatement of depreciation -nderstatement of inventory at !ecemer &1% 201& Corrected income

Capital per oo(s -nderstatement Capital as corrected 3

@on #)+%'10 ))) #)*%&')

2011 #1*%000 2%0003

2012 #22%000 2%0003

201& #2*%000 2%0003

#1'%000

#20%000

+%000 #&5%000

Fel #&&%*50 ))' #&$%)1'

la #$'%&$0 ))' #$+%00'

"otal #150%000 2%000 #152%000

Correcting entry on @anuary 1% 201$7 Inventory

# +%000

@on capital # ))) Fel capital ))' la capital ))' ;ccumulated depreciation )%000 "o correct prior years4 profits and adNust inventory and accumulated depreciation.


16- 36

Solution 16-7 1.

;ssuming good/ill approach is used7 1. Partnership fair value #1%+00%000  $0,3 "otal euity of the partnership ood/ill

#$%500%000 #&%250%000 #1%250%000

@ournal entry7 ood/ill D;3 1%250%000 Fiyoshi capital DBE3 #1%250%000  '0,3 asao capital DBE3 #1%250%000  &0,3 "o record revaluation of partnership value Capital alances after revaluation Fiyoshi #1%'50%000 D #+'5%0003 asao #1%500%000 D #&'5%0003

+'5%000 &'5%000

#2%)25%000 #1%+'5%000

@ournal entry7 Fiyo Fiyosh shi i capi capita tal l 9BE 9BE3 3 #2% #2%)2 )25% 5%00 000 0  $0,3 $0,3 1%05 1%050% 0%00 000 0 as asao capita ital 9B 9BE3 #1%+' %+'5%00 %000  $0,3 '50%000 000
:che :chedu dule le to allo alloca cate te the the cap capit ital al ala alanc nce e

CITL .LNCES

6efore =eva =evalu luat atio ion n

=eva =evalu luat atio ion n

;fter =evaluation

Fiyoshi

# 1%'50%000

# +'5%000

# 2%)25%000

Capital "ransferred 9# 1%050%000

asao

# 1%500%000

# &'5%000

# 1%+'5%000

9# '50%000

# 1%+00%000 # &%250%000

# 1%250%000

# $%500%000

# 0

Capital ;fter "ransfer # 1%5'5%000 &5, # 1%125%000 25, # 1%+00%000 $0, # $%500%000

$$u,in onu$ !"o!(% !"o!(% i$ i$ u$#)

1. @our @ourna nal l entr entry7 y7 Fiy Fiyoshi shi capi apital 9BE3 BE3 #1% #1%'50%0 0%000  $0,3 0,3 asao asao capital capital 9BE3 9BE3 #1%500 #1%500%000 %000  $0,3 $0,3
'00%00 %000 )00%000 )00%000 1%500%000

"o transfer Fiyoshi capital and asao Capital to
Fiyoshi

Per 6oo(s # 1%'50%000

Capital "ransferred 9# '00%000

Capital ;fter "ransfer # &2,


Chapter 16

16-37

1%050%000 asao

# 1%500%000

9# )00%000 # 1%&00%000

# &%250%000

# 0

# *00%000 # 1%&00%000 # &%250%000

2+, $0,

Solution 16-8 1

Car sells one9half of her interest to !ar for #*0%0007 C!it!l !((ount !l!n(#$ 7

;nn 6o Car !ar

capital capital capital capital "otal capital

# '5%000 100%000 )2%500 )2%500 #&00%000

"here is no asis for revaluation ecause the capital alances are not aligned /ith profit and loss sharing ratios. "he entry to admit !ar transfers one9half of Car4s capital account to !ar% regardless of the amount !ar pays Car7 Car capital

#)2%500 !ar capital

# )2%500

"o admit !ar to a 25, interest in the partnership. 2

!ar invests #'5%000 in the partnership for a 25, interest% and partnership assets are revalued7 C!it!l !((ount !l!n(#$ 7

;nn 6o Car !ar


# '5%000 100%000 125%000 100%000 #$00%000

:ince !ar4s investment of #'5%000 is less than his capital credit under the onus procedure O#&00%000 D #'5%0003 ´ 25, and the assets are to e revalued% good/ill accrues to the ne/ partner. "he entry to record the admission of !ar to the partnership is7 Cash ood/ill

#'5%000 25%000 !ar capital

#100%000

"o admit !ar to a 25, interest in the partnership and record good/ill computed as follo/s7 Bld capital #&00%000.'5 interest retained y the old partners 8 #$00%000 ne/ capital. #$00%000 ne/ capital 9 #&00%000 old capital D #'5%000 ne/ investment3 8 #25%000 good/ill to ne/ partner.



16- 38

Solution 16-8 continued3 3

!ar invests #+0%000 for a 20, interest in the partnership and partnership assets are revalued7 C!it!l !((ount !l!n(#$ 7

;nn 6o Car !ar


# +0%000 105%000 1&5%000 +0%000 #$00%000

:ince !ar4s investment of #+0%000 is greater than his capital credit under the onus procedure O#&00%000 D #+0%0003 ´ 20,% and assets are to e revalued% good/ill accrues to the old partners. "he entries are as follo/s7 ood/ill

#20%000 ;nn capital # 5%000 6o capital 5%000 Car capital 10%000 "o record good/ill and adNust the partners4 capital accounts7 !ar4s investment #+0%00020, 8 #$00%000 ne/ capital #$00%000 9 #&+0%000 old capital plus ne/ investment 8 #20%000 good/ill to the old partners.

Cash

4

#+0%000 !ar capital # +0%000 "o admit !ar to a 20, interest in the partnership for #+0%000.

!ar invests #*0%000 for a &0, interest in the partnership and assets are not revalued7 C!it!l !((ount !l!n(#$ 7

;nn 6o Car !ar


# )+%250 *&%250 111%500 11'%000 #&*0%000

:ince !ar4s investment of #*0%000 for a &0, interest is less than his capital credit O#&00%000 D #*0%0003 ´ &0,% and no good/ill is to e recorded% !ar receives the onus. "he entry is as follo/s7 Cash ;nn capital 6o capital Car capital

#*0%000 )%'50 )%'50 1&%500

!ar capital #11'%000 "o record !ar4s #*0%000 investment for a &0, interest and allo/ him a onus of #2'%000 computed as follo/s7 #&*0%000 total capital ´ &0,3 9 #*0%000 investment 8 #2'%000


Chapter 16

16-39

Solution 16-9 1

=evaluation good/ill to ne/ partner3 Cash ood/ill

#+5%0+0 $%*20

Con capital #*0%000 "o record admission of Con and good/ill to Con computed as7 Bld capital of #$50%000 8 5) ne/ capital ay capital

#+5%0+0 1%)$0 2%050 $10

Con capital #+*%1+0 "o record admission of Con and onus to Con computed as7
=evaluation ood/ill

#)0%$+0 Pat capital $0,3 #2$%1*2 ic capital 50,3 &0%2$0 >ay capital 10,3 )%0$+ "o record revaluation of old partnership computed as7
Pat capital ic capital >ay capital

#2+%0&2 $1%0$0 1)%00+

Con capital #+5%0+0 "o record capital transfers eual to 1) of old partners4 capital alances as adNusted7 Pat #1$$%000 D #2$%1*23) 8 #2+%0&2 ic #21)%000 D #&0%2$03) 8 #$1%0$0 >ay #*0%000 D #)%0$+3) 8 #1)%00+ ay capital

#2$%000 &)%000 15%000

Con capital "o transfer 1) of capital alances to Con.


#'5%000


16- 40

Solution 16-10 1

Car pays #$50%000 directly to ;id and "ha for $0, of each of their interests and the onus procedure is used. ;id capital "ha capital

#200%000 112%000

Car capital Eisting capital #'+0%000 2

#&12%000 ´

$0, 8 #&12%000.

Car pays #)00%000 directly to ;id and "ha for $0, of each of their interests and goodwill is recorded. ood/ill

#'20%000

;id capital #&)0%000 "ha capital &)0%000 ood/ill 8 Payment to old partners #)00%000.$ 9 #'+0%000 eisting capital 8 #'20%000 ;id capital "ha capital

#&$$%000 25)%000

Car capital ;id capital 8 #500%000 D #&)0%0003 "ha capital 8 #2+0%000 D #&)0%0003 3

#)00%000 .$ ´ .$ ´

Car invests #$50%000 in the partnership for her $0, interest% and goodwill is recorded.

Cash ood/ill

#$50%000 '0%000

Car capital #520%000 Bld capital #'+0%000.) 8 #1%&00%000 ne/ capital
Car invests #)00%000 in the partnership for her $0, interest% and goodwill is recorded.

ood/ill

#120%000

;id capital # )0%000 "ha capital )0%000 ood/ill 8 ne/ investment #)00%000.$ 8 #1%500%000 total capital #1%500%000 9 #1%&+0%000 old capital and ne/ investment 8 #120%000 Cash

#)00%000 Car capital "o record ne/ partner4s investment.


#)00%000

Chapter 16

16-41

Solution 16-11 !"+ Ion+ !n) #" !"tn#"$%i

:tatement of Partnership Capital for the years ended !ecemer &1% 2011 and 2012

Investment @anuary 1% 2011 ;dditional investment — 2011 Aithdra/al — 2011

>ar Capital #20%000

Ion Capital #20%000 +%000

@er Capital #20%000

$%0003

"otal Capital # )0%000 +%000 $%0003

1)%000 $%000

2+%000 $%000

20%000 1)%000

)$%000 2$%000

Capital !ecemer &1% 2011 Aithdra/al — 2012

20%000 $%0003

&2%000 +%0003

&)%000

++%000 12%0003

1)%000 2%'2' #1+%'2'

2$%000 $%&)$ #2+%&)$

&)%000 1)%*0* #52%*0*

')%000 2$%000 #100%000

Computation of net income7

;ssets #12*%500 9 liailities #2*%500 8 #100%000 capital !ecemer &1% 2012 6eginning capital #)0%000 D investment #+%000 9 /ithdra/als #1)%000 8 #52%000 #100%000 9 #52%000 8 #$+%000 net income for the t/o year period. S(%#)ul# o "oit !n) Lo$$ i$t"iution

Income for 2011 :alary allo/ance to @er =emainder to divide Bne9third to each partner ;llocation of income Income for 2012 :alary allo/ance to @er =emainder to divide !ivided in eginning capital ratios7 20++% &2++% &)++ ;llocation of income

>ar

Ion

# 12%000 # $%000

# $%000

$%000

# $%000

# $%000

# 1)%000

#2$%000 12%0003 12%000 12%0003 0

@er

# 12%000

# 2%'2'

# $%&)$

$%*0*

# 2%'2'

# $%&)$

# 1)%*0*



16- 42

Solution 16-12 1

Closing entries for Par and 6oo Partnership :ervice revenue #50%000 :upplies epense #1'%000 -tilities epense $%000 Bther miscellaneous epenses 5%000 Income summary 2$%000 "o close revenue and epense to profit and loss summary account. Par capital 6oo capital

# +%000 10%000

:alaries to partners #1+%000 "o close salaries to partners dra/ings3 to partners4 capital accounts. Income summary #2$%000 Par capital #12%000 6oo capital 12%000 "o close income summary and to divide profits eually as reuired in the asence of a profit sharing agreement. 2

!" !n) .oo !"tn#"$%i

:tatement of Partners4 Capital for the ten months ending !ecemer &1% 2011

Investments arch 1% 2011 ;dd additional investments7 6oo @uly 1 Par Bctoer 1 Less Par /ithdra/al ay 2 Less mo monthly dra/ings salaries3
Par #&0%000

6oo #&0%000 10%000

"otal #)0%000

$%000 &$ &$%000 $%0003 +%0003 22%000 10%)25

10%0003 &0%000 1&%&'5

10%000 $%000 '$%000 $%0003 1+%0003 52%000 2$%000

#&2%)25

#$&%&'5

#')%000

$0%000


Chapter 16

Solution 16-12

16-43

continued3 S(%#)ul# o "oit !n) Lo$$ i$t"iution

Par # +%000

6oo # 10%000

2%)25 #10%)25

&%&'5 # 1&%&'5

Co,ut!tion o #"!# C!it!l .!l!n(#$

;verage capital of Par # )0%000 #&0%000 ´ 2 months 8 1&0%000 #2)%000 ´ 5 months 8 *0 * 0%000 #&0%000 ´ & months 8 "otal #2+0%000 ;verage capital #2+0%00010 months3 # 2+%000 3

;verage capital #&0%000 ´ $ months 8 #$0%000 ´ ) months 8 "otal ;verage capital #&)0%00010 months3

of 6oo #120%000 2$0%000 #&)0%000

# &)%000

!" !n) .oo !"tn#"$%i

:chedule of Profit and Loss !istriution for the ten months ending !ecemer &1% 2011

1012 year

2%+003

1012 year

& &%)003

´

´

Par # +%000

6oo # 10%000

2%+00

&%)00 Loss to divide !ivide loss 50750 !istriution of income

$003 $00 0

2003 #10%)00


2003 # 1&%$00


16- 44

Solution 16-13 1

Pet capital

#&'%500 "om capital #&'%500 "o record "om4s admission to the partnership for a one9fourth interest in capital and profits y direct purchase of one9half of Pet4s 50, interest. "om4s capital credit is eual to capital transferred from Pet to "om #'5%000 ´ 50,3.

$roposal '& "om purchases one9fourth of each partners4 capital from

partners Pet capital Kua capital :he capital

#1+%'50 12%500 )%250

"om capital #&'%500 "o record "om4s admission to the partnership y direct purchase of one9fourth of each partner4s capital and future profits. "om4s capital credit is eual to the capital transferred from the other partners7 #'5%000 ´ 25,3 D #50%000 ´ 25,3 D #25%000 ´ 25,3. $roposal (& "om invests cash in the partnership for a one9fourth

interest Cash

#55%000

Pet capital # 1%+'5 Kua capital 1%125 :he capital '50 "om capital 51%250 "o record "om4s #55%000 investment for a one9fourth interest in capital and future profits. "otal capital is #150%000 D #55%000. "om4s share of total capital is #205%000 ´ 25,% or #51%250. "om4s investment of #55%000 less "om4s capital credit of #51%250 euals #&%'50 onus to old partners. 2

Partnership assets are revalued $roposal %& "om purchases one9half of Pet4s capital from Pet

ood/ill

#*0%000 Pet capital #$5%000 Kua capital 2'%000 :he capital 1+%000 "o record good/ill on asis of the price paid y "om for a one9 fourth interest in capital and profits. "otal capital is #2$0%000 #)0%00025,3. "otal capital of #2$0%000 less recorded capital of #150%000 euals #*0%000 good/ill.

Pet capital

#)0%000 "om capital #)0%000 "o record "om4s purchase of one9half of Pet4s capital and right to Pet4s profits.


Chapter 16

Solution 16-13

16-45

continued3

$roposal '& "om purchases one9fourth of partners4 capital from partners

ood/ill

#&0%000

Pet capital #15%000 Kua capital *%000 :he capital )%000 "o record good/ill on the asis of the price paid y "om for one9 fourth of the capital and profits of each of the partners. "otal capital is #1+0%000 #$5%00025,3. "otal capital of #1+0%000 less recorded capital of #150%000 euals #&0%000 good/ill. Pet capital Kua capital :he capital

#22%500 1$%'50 '%'50

"om capital #$5%000 "o record "om4s admission to a one9fourth interest in partnership capital and profits. "om4s capital is eual to the capital transferred after revaluation7 #*0%000 ´ 25,3 D #5*%000 ´ 25,3 D #&1%000 ´ 25,3. $roposal (& "om invests cash in the partnership for one9fourth interest

ood/ill

#15%000

Pet capital # '%500 Kua capital $%500 :he capital &%000 "o record good/ill ased on "om4s investment of #55%000 for a one9 fourth interest in partnership capital and profit. "otal capital of #220%000 9 #150%000 recorded capital D #55%000 investment3 8 #15%000 good/ill. Cash

#55%000 "om capital #55%000 "o record "om4s #55%000 investment for a one9fourth interest in capital and profits. "otal capital 8 #220%000H "om4s capital is #220%000 ´ 25,% or #55%000.



16- 46

Solution 16-14 1

;verage capital alances ) im

#)0%000 '0%000 )$%000

*a s

& months 8 ´ 5 months 8 ´ $ months 8 ´

#'+)%00012 months 8

#1+0%000 &50%000 25)%000 #'+)%000 # )5%500

2

6eginning alances ;dd7 Investments Less7 Aithdra/als Less7 !ra/ings
#'*2%00012 months 8

#&00%000 &'+%000 11$%000 #'*2%000 # ))%000

"im # )0%000 10%000 )%0003 1+%0003 $)%000 5$%)00 #100%)00

"otal #1&5%000 10%000 2$%0003 $2%0003 '*%000 10&%000 #1+2%000

#'5%000 )&%000 5'%000

$ months 8 ´ ) months 8 ´ 2 months 8 ´

Las #'5%000 0 1+%0003 2$%0003 &&%000 $+%$00 #+1%$00

:chedule of income allocation7 "im
#10&%000 $2%0003 )1%000 )1%0003 0

Las

#1+%000

# 2$%000

&)%)00 #5$%)00

2$%$00 # $+%$00


Ch16 Beams12ge SM

Recommend Documents