CHAPTER 12 Accounting for Partnerships ASSIGNMENT CLASSIFICATION TABLE Study Objectives
Questions
Brief Exercises
Exercises
A Problems
B Problems
1. Identi Identify fy the chara characte cteris ristic tics s of the partnership form of business organization.
1, 2, 3, 4, 12
1
2. Expl Explai ain n the the acco accoun unti ting ng entries for the formation of a partnership. partnership.
5
1, 2
2, 3
1A
1B
3. Iden Identi tify fy the the base bases s for for dividing net income or net loss.
6, 7, 8, 9, 10
3, 4, 5
4, 5
2A
2B
4. Desc Descri ribe be the the for form m and and content of partnership financial statements.
11
6, 7
1A, 2A
1B, 2B
5. Expl Explai ain n the the eff effec ects ts of the entries to record the liquidation of a partnership.
12, 13, 14, 15, 16
6
8, 9, 10
3A
3B
*6. *6. Expl Explai ain n the the effec effects ts of the entries when a new partner is admitted.
17, 18, 19, 20
7, 8
11, 12, 15
4A
4B
*7. *7. Desc Descri ribe be the the eff effec ects ts of the entries when a partner withdraws from the firm.
20, 21, 22, 23
9, 10
13, 14, 15
5A
5B
*Note: All asterisked Questions, Exercises, and Problems relate to material contained in the appendix *to the chapter.
12-1
ASSIGNMENT CHARACTERISTICS TABLE Problem Num Number ber Desc Descri rip ption tion
Difficulty Level
Time Allotted (min.)
Simple
20–30
1A
Prep Prepar are e ent entri ries es for for for forma mati tion on of a part partne ners rshi hip p and a balance sheet.
2A
Jour Journa nalilize ze divi divisi sion ons s of of net net inco income me and and prep prepar are e a partners’ capital statement.
Moderate
30–40
3A
Prep Prepar are e entr entrie ies s with with a capi capita tall defi defici cien ency cy in in liqu liquid idat atio ion n of a partnership
Moderate
30–40
*4A *4A
Jour Journa nalilize ze admi admiss ssio ion n of of a part partne nerr und under er diffe differe rent nt assumptions.
Moderate
30–40
*5A *5A
Jour Journa nalilize ze with withdr draw awal al of a par partn tner er unde underr dif diffe fere rent nt assumptions.
Moderate
30–40
Simple
30–40
1B
Prep Prepar are e ent entri ries es for for for forma mati tion on of a part partne ners rshi hip p and a balance sheet.
2B
Jour Journa nalilize ze divi divisi sion ons s of of net net inco income me and and prep prepar are e a partners’ capital statement.
Moderate
30–40
3B
Prep Prepar are e ent entri ries es and and sch sched edul ule e of of cas cash h pay payme ment nts s in in liquidation of a partnership. partnership.
Moderate
30–40
*4B *4B
Jour Journa nalilize ze admi admiss ssio ion n of of a part partne nerr und under er diffe differe rent nt assumptions.
Moderate
30–40
*5B *5B
Jour Journa nalilize ze with withdr draw awal al of a par partn tner er unde underr dif diffe fere rent nt assumptions.
Moderate
30–40
12-2
BLOOM’S TAXONOMY TABLE
s m e l b o r P d n a s e s i c r e x E r e t p a h C f o d n E d n a s e v i t c e j b O y d u t S , y m o n o x a T s ’ m o o l B n e e w t e b t r a h C n o i t a l e r r o C
g n i k n o e a e t i h M a s t z a n s i C o n s i o a s s r g c i i c c r h e A O t D E n o u i t o a Y c i n t u u o b m A m o l l C A
n o i t a u l a v E
s i s e h t n y S s i s y l a n A n o i t a c i l p p A 2 - 1 - 1 n 4 2 2 o i 1 1 2 1 s n Q Q E e h e r p m 1 2 3 o - - 2 2 C 2 1 1 1 Q Q Q e g d e l w o n K s f c i t o . s n i r m r o e f o i e t v c t a i p z t r a i i c a h e s n j a r b h c e r g O e t n y h r o t a s d s y p u e t f i e n S t h i n t s e f u d I o b . 1
A B 3 - 1 - 1 2 2 2 1 1 1 E P P
A B 4 - 5 - 2 - 2 2 2 2 2 1 1 1 1 E E P P
A B B 2 - 1 - 2 2 2 2 1 1 1 P P P
0 A B 9 - 1 - 3 - 3 2 2 2 2 1 1 1 1 E E P P
2 5 A B 1 - 1 - 4 - 4 2 2 2 2 1 1 1 1 E E P P
1 - 2 5 - 2 2 2 1 1 2 1 E E 2 1 Q B B E
0 3 - 4 - 5 8 - 1 - 2 2 2 1 1 1 2 2 1 1 E E E Q Q B B B
A 6 - 7 - 1 2 2 2 1 1 1 E E P
5 6 6 1 - 1 - 2 8 1 2 2 2 1 1 E 1 Q Q B E
9 0 7 - 8 - 1 1 - 2 - 2 2 1 1 1 2 2 1 1 E E 2 1 Q Q B B E
6 - 7 - 9 2 2 2 1 1 1 Q Q Q
n g i o n t i a t n m u r . o f o p c i c e h a h s r e t e r h n o t t f n s r i a e p a i l r p t a x n f E e o . 2
r r o o e f s m e o s c a i n b t e e h t n . s y g f n s i i o t d l n i t e i v e d I d n . 3
1 1 2 1 Q
2 3 4 1 - 1 - 1 2 2 2 1 1 1 Q Q Q
e h t p . f d i n h s e a s t o h s t r n t m e e c d r n e r a t o f f r m o f f e t a e c . e p a e o p h e r i t f t n s h o h o l t i o s e t a n t t b i i s a r e r n c i e d a i e n n c t l i t r s n a p t u r e o i n x n i q a D c f E e l p . . 4 5
12-3
4 5 A B 1 - 1 - 5 - 5 2 2 2 2 1 1 1 1 E E P P 0 1 0 1 9 - 3 2 - 2 - 2 2 1 1 1 2 2 1 1 E E 2 1 Q Q B B E
7 8 1 - 1 2 2 1 1 Q Q
2 3 2 - 2 2 2 1 1 Q Q
b e g W n i e k n o a e t h i t M h a t g n z i n s i o s n r i o a o i s r l g p c c r x e A O E D
r e n e t h t r a f p o s w t e c n e f f a e n . e d e h h e t w t t i n s i e m a i l r d p t x n a s E e i . 6 *
r e . n m f t r o r i a f s p e t c a h e t f f n e m e h o r e w f h t s s e e i r w b a t i r r n d c e h s e t e i D h t w . 7 *
e v i t c e p s r e P r u o Y g n i n e d a o r B
ANSWERS TO QUESTIONS 1.
(a) Association Association of of individuals. individuals. A partner partnership ship is a voluntary voluntary associat association ion of two or more more individua individuals ls based on as simple an act as a handshake. Preferably, however, the agreement should be in writing. A partnership is both a legal entity and an accounting entity, but it is not a taxable entity. (b) Limited Limited life. A partnersh partnership ip does does not have unlimited unlimited life. life. A partnership partnership may be ended voluntarily voluntarily or involuntarily. Thus, the life of a partnership is indefinite. Any change in the members of a partnership results in the dissolution of the partnership. partnership. (c) Co-ownership Co-ownership of property. property. Partnership Partnership assets are co-owned co-owned by by all the partners. If the partnership partnership is terminated, the assets do not legally revert to the original contributor. Each partner has a claim on total assets equal to his or her capital balance. This claim does not attach to specific assets the individual partner contributed to the firm.
2.
(a) Mutual agency. agency. This This characteris characteristic tic means means that the act act of any partner partner is is binding binding on all other partners when engaging in partnership business. This is true even when the partners act beyond the scope of their authority, so long as the act appears to be appropriate for the partnership. (b) Unlimited Unlimited liability. liability. Each Each partner partner is personally personally and individual individually ly liable for all partnersh partnership ip liabilities. liabilities. Creditors’ claims attach first to partnership assets and then to personal resources of any partner, irrespective of that partner’s equity in the partnership. partnership.
3.
The advantages of a partnership are: (1) combining skills and resources of two or more individuals, (2) ease of formation, (3) freedom from governmental regulations and restrictions, and (4) ease of decision making. Disadvantages are: (1) mutual agency, (2) limited life, and (3) unlimited liability.
4.
A limited partnership is used when a general partner(s) wish to raise cash without involving outside investors in management of the business. Limited partners in this case have limited personal liability for business debts as long as they don’t participate in management.
5.
The capital balance should be $102,000, comprised of land $65,000, and equipment $57,000, less debt $20,000.
6.
When the partnership agreement does not specify the division of net income or net loss, net income and net loss should be divided equally.
7.
Factors to be considered in determining how income and loss should be divided are: (1) a fixed ratio is easy to apply and it may be an equitable basis in some circumstances; (2) capital balance ratios when the funds invested in the partnership are considered the most critical factor; and (3) salary allowance and/or interest allowance coupled with a fixed ratio. This last approach gives specific recognition to differences that may exist among partners by providing salary allowances for time worked and interest allowances for capital invested.
8.
The net income of $36,000 should be divided equally—$18,000 to M. Carson and $18,000 to R. Leno.
9.
(a) Account debited: Income Summary; Summary; accounts accounts credited: S. McMurray, McMurray, Capital and F. Kohl, Kohl, Capital. Capital. (b) Account Account debited debited:: S. McMurra McMurray, y, Drawing; Drawing; accou account nt credite credited: d: Cash. Cash.
12-4
Questions Chapter 12 (Continued)
10.
Division of Net Income
Salary Sala ry Allowance Allo wance ...................... ................................. ...................... ................... ........ Deficiency: ($10,000) ($45,000 – $55,000) T. Evans (60% X $10,000) ........ ............ ........ ........ ...... .. R. Meloy (40% X $10,000) ........ ............ ........ ........ ...... .. Total Tota l division divi sion ..................... ................................ .............. ...
T. Evans
R. Meloy
Total
($30,000) $30,000 )
($25,000) $25,000 )
($55,000) $55,000)
(4,000) ($21,000) $21,000 )
( (6,000) ( (4,000) ($45,000) $45,000)
( (6,000) ( ($24,000) $24,000 )
11. The financial statements of a partnership are similar to those of a proprietorship. The differences are due to the number of partners involved. The income statement for a partnership is identical to the income statement for a proprietorship except for the division of net income. The owners’ equity statement is called the partners’ capital statement. This statement shows the changes in each partner’s capital account and in total partnership capital during the year. On the balance sheet each partner’s capital balance is reported in the owners’ equity section. 12. Liquidation of a partnership ends both the legal and economic life of the entity. Partnership dissolution occurs whenever a partner withdraws or a new partner is admitted. Dissolution does not necessarily mean that the business ends. If the continuing partners agree, operations can continue without interruption by forming a new partnership. 13. No, Bobby is not correct. All gains and losses on liquidation should be allocated to the partners on the basis of their income ratio. However, final cash distributions should be based on their capital balances. 14. Yes, Bill is correct. Capital balances are used because they represent the individual partner’s equity in the partnership. The objective of the distribution is to eliminate the balance in each partner’s capital account.
liabiliti es.......... ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .... 15. Total cash after paying liabilities...... Total capital balances ($34,000 + $31,000 + $28,000).... $28,000)...... ..... ...... ...... ...... ...... ...... ..... ..... ...... ...... ..... ..... ...... ...... ...... ...... ...... ... Excess (gain on sale of noncash assets) ...... ......... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ..... ..... ...... ...... ..... ..... ...... ...... ...... ...... ...... ..... ..
$109,000 93,000 $ 16,000
Allocated to Keegan ($16,000 X 3/10) ........ ............ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... ...
$
4,800
Cash to Keegan ($31,000 + $4,800) ........ ............ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... ..
$ 35,800
Jeter.............. ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... 16. Capital deficiency, M. Jeter..........
$
8,000
Loss allocated to: L. Pattison, capital ($8,000 X 3/8) ...... ........ ..... ...... ...... ...... ...... ...... ..... ..... ...... ...... ...... ...... ...... ..... ..... ...... ...... ...
$
3,000
Cash to L. L. Pattison ($12,000 ($12,000 – $3,000) $3,000) ...... ........ ..... ...... ...... ..... ..... ...... ...... ..... ..... ...... ...... ...... ...... ...... ..... ..... ...... ...... ..... ..... ...... ...... ...... ...... ...... ..... ..
$
9,000
*17.
This transaction represents the purchase of an existing partner’s interest. It is a personal transaction that has no effect on partnership net assets.
12-5
Questions Chapter 12 (Continued) *18. Partnership net assets increase $25,000. No, Steve Renn does not necessarily acquire a 1/6 income ratio. Unless stated otherwise, net income or net loss is divided evenly among all partners. *19.
*20.
*21
Grant, Capital.... Capital ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .... Kate Kate Robi Robido dou, u, Capi Capita tal.. l.....................................................................................
66,000
Tracy Harper, Capital ........ ............ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... .. Kim Kim Remi Reming ngto ton, n, Capi Capita tal.. l..................................................................................
39,000
Newlin’s share of the bonus is $3,000 computed as follows: Part Partne ners rshi hip p asse assets.. ts........ .......... ...... .... .... ........ ...... .... ........ ...... .... .... ........ ...... .... .... ........ ...... .... ........ ...... .... .... ........ ...... .... .... ........ ...... .... .... Capi Capita tall cred credit it,, Perr Perry.. y....... ....... ...... .... .... ........ ...... .... .... ........ ...... .... ........ ...... .... .... ........ ...... .... ........ ...... .... .... ........ ...... .... .... ........ ...... .... .... Bonu Bonus s to to ret retir irin ing g par partn tner. er................................................................................. Allocated to: Garland: $8,000 X 5/8 = ...... ......... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ..... ..... ...... ...... ..... ..... ...... ...... ...... ...... ...... ... Newlin Newlin:: $8,00 $8,000 0 X 3/8 = ... ..... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... ....
66,0 66,000 00
39,0 39,000 00
$85, $85,00 000 0 77,0 77,000 00 8,00 8,000 0 $5,000 3,000 3,000
8,000 8,000 $ 0
*22. Recording the revaluations violates the cost principle, which requires that assets be stated at original cost. It is also a departure from the going-concern assumption, which assumes the entity will continue indefinitely. *23. When a partner dies, it is usually necessary to determine the partner’s equity at the date of death by: (1) determining the net income or loss for the year to date, (2) closing the books, and (3) preparing financial statements. The partnership agreement may also require an audit of the financial statements by independent auditors and a revaluation of assets by an appraisal firm.
12-6
SOLUTIONS TO BRIEF EXERCISES BRIEF EXERCISE 12-1 Cash ...... ......... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ..... Equipment Equipme nt... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ..... .. Nichols, Capital ....................................................
10,000 10,00 0 4,000 14,000
BRIEF EXERCISE 12-2 Accounts Receivable...... Receivable........ .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... Less: Less: Allowanc Allowance e for doubtful doubtful account accounts s ... ....... ...... .... .... .... .... .... .... .... ........ .... Equ quip ipme men nt... t...................................................................................
$16,000 1,500
$14,500 11,0 11,000 00
Accumulated depreciation should not be shown because a new company cannot have any accumulated depreciation. BRIEF EXERCISE 12-3 The division is: Rod $45,000 ($75,000 X 60%) and Dall $30,000 ($75,000 X 40%). The entry is: Income Summary.. Summary .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... 75,000 Rod, Capital ............................................................. 45,000 Dall, Capital.. 30,000 l............................................................ BRIEF EXERCISE 12-4 Division of Net Income
Salary allowance........................... Remaining income, $20,000: ($45,000 – $25,000) 5 0%) ...... ......... ...... ..... P ($20,000 X 50%) F ($20,000 X 30%) ...... ......... ...... ..... 2 0%) ...... ......... ...... ..... W($20,000 X 20%) Total remainder remain der... ...... ...... ... Total Tot al divisi div ision........ on............. .......... .......... .......... .......... .......
Partner
Filbert
Witten
Total
$15,000
$ 5,000
$ 5,000
$25,000
6,000 000,000
4,000
10,000
$25,000 12-7
$11,000
$9,000
20,000 $45,000
BRIEF EXERCISE 12-5 Division of Net Income Nabb
Salary Sal ary allowan all owance ce .......... ............... .......... .......... .......... .......... .......... .......... ....... Intere Int erest st allowa all owance nce..... .......... .......... .......... .......... .......... .......... .......... ......... .... Remaining deficiency, ($6,000): [($25,000 + $12,000) – $31,000] Nabb ($6,000X50%) 0% ) .............................. Fry ($6,000 X 50%) .. .............................. Total Tota l remain rem ainder der .......... ............... .......... .......... .......... ....... Total Tot al divisi div ision on..... .......... .......... .......... .......... .......... .......... .......... .......... .......... ........ ...
$15,000 7,000
Fry
Total
$10,000 5,000
$25,000 12,000
(3,000) (3,000) $19,000
$12,000
(6,000) $31,000
BRIEF EXERCISE 12-6 A, Capital..... Capita l........ ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ... B, Capital ...... ......... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ..... .. C, Capital Capit al ...... ......... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ..... .. Cash.........................................................................................
8,000 9,000 4,000 21,000
*BRIEF EXERCISE 12-7 Eubank, Capital....................................................................................11,000 Capita tall ............................................... ......................................................................... ............................ .. Tovar , Capi
11,000
*BRIEF EXERCISE 12-8 Cash... Cash ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ..... .. Irey, Capital (50% X $8,600*). 00*).............................................. Pedigo, Capital (50% X $8,600) 00) ............................................. Vernon, Capital (45% X $148,000).................................... *[($40,000 + $50,000 + $58,000) X 45%] – $58,000 = $8,600.
12-8
58,000 4,300 4,300 66,600
*BRIEF EXERCISE 12-9 Fernetti, Capital.......... ............... .......... .......... .......... .......... .......... .......... .......... .......... .......... .......... .......... .......... .......... ..... Lango, Capital .......... ............... .......... .......... .......... .......... .......... .......... .......... .......... .......... .......... ......... .... Oslo, Capital .......... ............... .......... .......... .......... .......... .......... .......... .......... .......... .......... .......... .......... .......... .....
20,000 10,000 10,000
*BRIEF EXERCISE 12-10 Fernetti, Capital................. ......................... ................ ................. ................. ................ ................. ................. ............. ..... Lango, Capital(50% X $4,000) ................................................ Oslo,Capital (50% X $4,000) ...... ....... ...... ....... ...... ....... ....... ...... ....... ...... ....... ....... ...... ....... .... Cash Cash .........................................................................................
12-9
20,000 2,000 2,000
24,0 24,000 00
SOLUTIONS TO EXERCISES EXERCISE 12-1 1. 2. 3. 4. 5. 6. 7. 8. 9.
Fals False. e. A par partn tner ersh ship ip is an asso associ ciat atio ion n of two or or more persons to carry on as co-owners of a business for profit. False. False. Partn Partners ership hips s are are fairl fairly y easy easy to to form; form; they they can can be formed formed simply simply by a verbal agreement. False. A partnership is an an entity for financial reporting purposes. Fals False. e. Th The e net net inco income me of a partn artner ersh ship ip is not taxed taxed as a separate entity. True. True. False. False. Wh When en a part partne nersh rship ip is disso dissolve lved, d, the assets assets do not revert to the original contributor. True. False. se. Mutual agency is a disadvantage of the partnership form of business.
EXERCISE 12-2 (a) Cash..... Cash....... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .. Decker , Capital.. l........................................................
50,000 50,000
Land ...... ......... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ..... .. 15,000 15,00 0 Building Build ing ...... ......... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ..... 80,000 80,00 0 Capita tall ............................................................. Rosen, Capi Cash..... Cash....... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .. Accounts Receivable .... ...... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... Equip Equ ipme ment nt ................................................. .......................................................................... ............................ ... Allowance for Doubtful Accounts......................... Toso, Capital...........................................................
95,0 95,000 00
9,000 32,000 39,000 3,000 77,000
(b) (b) $50, $50,00 000 0 + $95, $95,00 000 0 + $77,000 = $222,000 EXERCISE 12-3 Jan. 1
Cash .... ...... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .. Accounts Receivable.... Receivable...... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... Equipment..................................................................... Allowance for Doubtful Accounts .................. Jack Jac k Hering Her ington, ton, Capital Capi tal .......... ............... .......... .......... .......... .......... ..... 12-10
12,000 14,000 23,500 3,000 46,500
EXERCISE 12-4 (a) (1)
DIVISION OF NET INCOME Sala Sa lary ry allo al lowa wanc nce e ............ .................. ............ ............ ............ ...... Interest allowance ($ 50,000 X 10%)..... 10%)....... .... .... .. M. McGill ($50,000 S. Smyth ($40,000 ($40,00 0 X 10%) .... ...... .... .... Total Tot al interes inte restt ...... ......... ...... ...... ...... ...... ...... ...... ..... Total salaries salari es and a nd interest intere st .... ...... .... .... .... .... .... .... .. Remaining income, $6,000 ($50,000 – $44,000) M. McGill ($6,000 X 60%)............. ...... .... .... .... S. Smyth ($6,000 X 40%) .... Total Tot al remain rem ainder der ...... ......... ...... ...... ...... ...... ..... .. Total division...........................................
(2)
M. McGill
S.Smyth
$22,000
$13,000
Total $35,000
5,000 4,000 27,000
17,000
9,000 44,000
3,600 2,400
$19,400
$30,600
6,000 $50,000
DIVISION OF NET INCOME Sala Sa lary ry allo al lowa wanc nce e ............ .................. ............ ............ ............ ...... Intere Int erest st allowan allo wance ce ...... ......... ...... ...... ...... ...... ...... ...... ...... ...... ... Total salaries salari es and a nd interest intere st .... ...... .... .... .... .... .... .... .. Remaining deficiency, ($8,000) ($44,000 – $36,000) M. McGill ($5,0 ($5 ,000 00 X 60%) 60 %).............. S.Smyth ($5, ($ 5,00 000 0 X 40%) 40 %) ........... Total Tot al remain rem ainder der ...... ......... ...... ...... ...... ...... ..... .. Total division...........................................
M. McGill
S.Smyth
Total
($22 $22,000) ,000) ( 5,000) 5,000) ( 25,000) 25,000)
($13,000 ( 4,000 ( 17,000
$35,000 9,000 44,000
( (4,800) ( (3,200) ( ) ($22,200) 00)
($13,800
(b) (1) Income Income Summar Summary y .... ...... .... .... .... .... .... .... .... .... ........ ...... .... .... .... .... .... ........ ...... .... .... .... .... .... .. M. McGill, Capital.. l................................................ S.Smyth, Ca Capital...............................................
50,000 50,000
(2) Income Summary Summary ........................................................ M. McGill, Capital.. l................................................ S.Smyth, Ca Capital...............................................
36,000
12-11
(8,000) $36,000
30,600 19,400 22,200 13,800
EXERCISE 12-5 (a) Income Summary ...... ......... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ..... C. Coburn, Capital ...................................................... ($80,000 X 45%) W.Webb, Capital.................................................... ($80,000 X 55%)
80,000
(b) Income Summary ...... ......... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ..... C.Coburn, Capi Capita tall ................................................ ...................................................... ...... [$30,000 + ($25,000 X 45%)] W. Webb, Capital.. l.................................................... [$25,000 + ($25,000 X 55%)]
80,000
(c) Income Summary ...... ......... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ..... C.Coburn, Capi Capita tall ................................................ ...................................................... ...... W. Webb, Capital....................................................
80,000
36,000 44,000
41,250
38,750
41,000 39,000
Coburn: [$40,000 + $6,000 – ($10,000 X 50%)] Webb: [$35,000 + $9,000 – ($10,000 X 50%)] (d) Coburn:$60,000 + $ 41,000 – $18,000 = $83,000 Webb: $90,000 + $39,000 – $24,000 = $105,000
EXERCISE 12-6 (a)
STARRITE CO. Partners’ Capital Statement For the Year Ended December 31, 2008 N. Nancy
Capital, January 1....................... Add: Net income inc ome..... .......... .......... .......... ......... .... Less: Less : Drawing Draw ings s .......... ............... .......... .......... ....... Capital, Capita l, December De cember 31 ...... ......... ...... ...... .....
$20,000 20,000 40,000 8,000 $32,000
12-12
A. Ann
$18,000 20,000 38,000 5,000 $33,000
Total $38,000 40,000 78,000 13,000 $65,000
EXERCISE 12-6 (Continued) (b)
STARRITE CO. Partial Balance Sheet December 31, 2008
Owners’ equity N.Nancy, Capi Capita tall .............................................................. A. Ann, Capita Capital. l............................................................. Total ow owners’ eq equity.................................................
$32,000 33,000 $65,000
EXERCISE 12-7 THE STOOGES PARTNERSHIP Balance Sheet December 31, 2008 Assets Current Assets Cash Cash......................................................................... $37, $37,00 000 0 Accounts Account s Receivable Recei vable... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ..... .. $36,000 $36,00 0 Less Less:: Allo Allowa wanc nce e for for Doub Doubtf tful ul Acco Accoun unts.. ts.... .... .... .... (4,000) 32,000 Supp Suppli lies.. es.................................................................. 3,00 3,000 0 Total current assets ..................................... $ 72,000 Property, Plant and Equipment Land Land ........................................................................ Buil Buildi ding ng................................................................... Equ quip ipme men nt... t............................................................. Total property, plant, and equipment ......... Total assets ..................................................................
$28,000 75,0 75,000 00 52,000 155,000 $227,000
Liabilities and Owners’ Equity Long-term Liabilities Mortgage Payable ................................................. Owners’ Equity Terry, Capi Capita tal.. l........................................................... Nick, Capital........................................................ Frank, Cap Capital ital......................................................... Total owners’ equity ..................................... Total liabilities and owners’ equity .......................
12-13
$ 20,000 $55, $55,00 000 0 83,000 69,000 207,000 $227,000
EXERCISE 12-8 THE BEST COMPANY Schedule of Cash Payments Item Balances before liquidation Sale of noncash assets and allocation of gain New balances Pay liabilities New balances Cash distribution to partners Final balances
Cash
+
Noncash Floyd Dewitt = + + Assets Liabilities Capital Capital
$ 20,000
($100,000) $100,000) ($55,000) $55,000)
105,000 125,000 (55,000) 70,000
( (100,000) ( 0) ( ) ( 0)
(70,000) $ 0
( ($
( ) ( 55,000) 55,000) ( (55,000) ( 0)
) ( 0) ($
) 0)
$45,000
$20,000
3,000 48,000
2,000 22,000
48,000
22,000
(48,000) $ 0
(22,000) $ 0
EXERCISE 12-9 (a) Cash..... Cash....... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... Noncash As Assets.. s....................................................... Gain on Re Realization ................................................
105,000
(b) Gain on Realization Realization .... ...... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... Floyd, Capital ($5,000 X 60%) ................... Dewitt, Capital($5,000 X 40%) ...................
5,000
(c) Liabilities.. Liabilities .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... Cash. Cash.............................................................................. (d) Floyd, Capital............................................................ Dewitt, Capi Capita tall .................................................. ............................................................ .......... Cash.............................................................................
12-14
100,000 5,000
3,000 2,000
55,000 55,0 55,000 00 48,000 22,000 70,000
EXERCISE 12-10 (a) (1) Cash Cash .... .......... ...... .... .... .... .... .... ........ ...... .... .... .... .... .... .... .... ........ ...... .... .... .... .... .... ........ ...... .... .... .... .... .... .... .... Penas, Ca Capital ....................................................
8,000 8,000
(2) Vogel, Capital Capital .... ...... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .. Utech, Capit Capital al ....................................................... Cash ......................................................................
17,000 15,00 15,000 0
(b) (1) Vogel, Capital ($8,000 ,000 X 5/8). 5/8).................................. Utech, Capital ($8,000 ,00 0 X 3/8) 3/8 ) .......... ............... .......... .......... ........ ... Penas, Ca Capital ....................................................
5,000 3,000
(2) Vogel, Capital ($17,000 – $5,000) ........................ Utech, Capital ($15,000 – $3,000) ..................... Cash ......................................................................
12,000 12,000
32,000
8,000
24,000
*EXERCISE 12-11 (a) K. Kolmer , Capital ($34,000 X 50%)..................................... 17,000 D. Don, Capi Capita tall .................................................. ......................................................... .......
17,000
(b) C. Eidman, Capital Capita l ($26,000 ($26, 000 X 50%) ...... ......... ...... ...... ...... ...... ...... ...... ...... ...... ...... ... 13,000 13,00 0 D. Don, Capital .........................................................
13,000
(c) C. Ryno, Capital ($21,000 X 33 1/3%)... %)............................... D. Don, Capital.. l.........................................................
7,000
7,000
*EXERCISE 12-12 (a) Cash .... ...... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... S. pagan, Capital (6/10 X $15,000)............................ T. Tabor , Capital (4/10 X $15,000) .......................... W. Wolford, Ca Capita ital.. l....................................................... Totall capit Tota capital al of exist existin ing g part partne ners rship hip ...... Investment by new partner, Wolford ....... Total Total capital capital of new partne partnersh rship ip.. ........ .......... ...... ..
$160,000 90,000 $250,000
Tabor, capital capi tal credit cred it..... .......... .......... .......... .......... .......... ....... .. $ (30% X $250,000)
75,000
12-15
90,000 9,000 6,000 75,000
*EXERCISE 12-12 (Continued) Investment by new partner, Tabor ....... Wolford capi capita tall credit credit ............................... Bonus to old partners... partners..... .... .... .... .... .... .... .... .... .... .... .... .... .... .... ..
$ 90,000 75,000 $ 15,000
(b) Cash... Cash......................................................................................... S. Pagan, Capital (6/10 X $13,00 ,000).. ).................................... T. Tabor , Capital (4/10 X $13,000)................................. W. Wolford, Capital ...................................................... Totall capi Tota capita tall of exist existin ing g part partne ners rshi hip.. p....... Investment by new partner, Wolford....... Tota To tall cap capita itall of of new new part partne ners rshi hip p .............
$160,000 50,000 $210,000
Wolford capital capital credit .... ...... .... .... .... .... .... .... .... .... .... .... .... .... .... (30% X $210,000)
$ 63,000
Investment by new partner, Wolford...... Wolford capi capita tall credit credit ............................... Bonus to new partner partner .... ...... .... .... .... .... .... .... .... .... .... .... .... .... .... ....
$ 50,000 63,000 $ 13,000
50,000 7,800 5,200 63,000
*EXERCISE 12-13 1.
2.
3.
C. Heganbarts, Capital...............................................................30,000 N. NEssex , Capi 15,000 Capita tall ............................................... ......................................................... .......... C. Gilmore , Capi 15,000 Capita tall ................................................. .......................................................... ......... C. Heganbarts, Capi Capita tall ................................................ .............................................................. ..............30,000 C. Gilmore, Capita Cap itall .......... ............... .......... .......... .......... .......... .......... .......... .......... .......... ........ ...
30,000
C. Heganbarts, Capi Capita tall ................................................ .............................................................. ..............30,000 C. Gilmore , Capi Capita tall ................................................... ......................................................... ......
30,000
12-16
*EXERCISE 12-14 1.
N. Rice, Capital Capit al... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ..... ,000 X 5/8) 5/8)................................... B. Higgins, Capital($4,000 J. Mayo, Capital ($4,000 ,000 X 3/8).. 3/8)...................................... Cash Cash ............................................... ........................................................................ ................................. ........
Capital balance of withdrawing partner.... partner...... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... Paym Paymen entt to wi with thdr draw awing ing part partne nerr .............. Bonus to retiring partner............................. Allocation of bonus Higgins, Cap Capital. ital................... ($4,000 X 5/8) Mayo, Capita ital .................... ($4,000 X 3/8) 2.
64,000
$60,000 64,000 $4 ,000
$2,500 1,500
$ 4,000
N. Rice, Capital Capit al..... ...... ....... ....... ...... ....... ...... ....... ....... ...... ....... ...... ....... ....... ...... ....... ...... ....... ...... ..... B. Higgins, Capital ($8,000 X 5/8) ........................... J. Mayo, Capital ($8,000 X 3/8) ............................ Cash Cash ................................................................................
Capital balance of withdrawing partner.... partner...... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... Paym Paymen entt to wi with thdr draw awing ing part partne nerr .............. Bonus Bonus to remain remaining ing partne partners.. rs.... ........ .......... ...... .... .... .... Allocation of bonus Barraj Barrajas, as, Capital. Capital... ........ ...... .... .... .... .... .... ($8,000 X 5/8) Dingle Dingler, r, Capital Capital...... .......... ...... .... .... .... .... .... ($8,000 X 3/8)
60,000 60,00 0 2,500 1,500
$60,000 52,000 $ 8,000
$5,000 3,000
12-17
$ 8,000
60,000 60,00 0 5,000 3,000 52,000
*EXERCISE 12-15 88,000 (a) (a ) Cash Ca sh.... ........ ........ ........ ........ ........ ....... ....... ....... ....... ........ ....... ....... ....... ....... ........ ....... ....... ....... ....... ........ ....... ..... Garrett, Capital.................................................... ($288,000 X 25%) Foss, Capital..................................................... ($16,000 X 50%) Alberston, Capital............................................... ($16,000 X 30%) Espinosa, Capital.................................................... ($16,000 X 20%)
(b) Foss, Capital .... ...... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... 100,000 Alberston, Capital........................................................ 6,000 ($10,000 X 3/5) Espinosa, Capital............................................................. 4,000 ($10,000 X 2/5) Cash. Cash..........................................................................
12-18
72,000 8,000 4,800 3,200
110,000
(
