CHAPTER 15 ANSWERS TO QUESTIONS
1. A partne partnersh rship ip is not subject subject to an income income tax, tax, but the individu individual al partners partners report report their their share share of partnership income, whether distributed or not, on their respective individual tax returns. 2. A partner's partner's capital balance represents represents his or her interest interest in the net assets of the partnership, partnership, whereas whereas a partner's interest in income and loss represents how his or her interest in capital will be affected by the subsequent subsequent operations operations of the partnership. partnership. Generally, Generally, a partner's partner's capital account account is used to recognize recognize asset investments investments and withdrawals withdrawals which are not considered considered temporary. temporary. The partner's partner's drawing account is generally used to record withdrawals of assets in anticipation of profitable operations of the partnership or any payments of a partner's personal expenses from partnership assets. 3. A partnership partnership is viewed viewed as a "separat "separatee economic economic entity" entity" in accounting accounting because because it has a "separable "separable and defina definable ble existe existence nce". ". The assets assets,, liabil liabiliti ities, es, and residu residual al capita capitall intere interest, st, as well well as the economic events which affect the various partnership accounts, require a "separable accounting" to provi provide de necessa necessary ry inform informati ation on to the partne partners rs and to others others intere intereste sted d in the partne partnersh rship' ip'ss performance. 4. Some common common methods used used in allocating allocating income income and loss to partners partners are: fixed fixed ratio, ratio, a ratio based based on capital balances, interest on capital, and payment for time devoted to partnership operations, salary and/or bonus. 5. A withdrawal withdrawal is is a reduction reduction in in assets, assets, not a distri distributio bution n of income. income. A salary salary is a determi determinate nate in the the allo allocat catio ion n of incom incomee and and is a rewa reward rd to the the part partne nerr for for the the amoun amountt of time time devot devoted ed to the the partnership's operations.
10. The bonus and goodwill methods will yield yield the same result when two conditions conditions relating to the new profit and loss loss agreement are met. met. These are: (1) the new partner's profit sharing interest equals his or her initial interest in capital; and (2) the old partners' profit sharing ratio is in the same relative ratio as in the old partnership. 11. Neither the goodwill method nor the bonus method method should be used to record the admission of a new partner when (1) the book value of the interest acquired is equal to the value of assets invested, or (2) the net assets of the firm are overvalued. 12. A partner withdrawing withdrawing in violation of the partnershi partnership p agreement and without the other partners' approval is entitled only to his or her interest in the firm, without consideration made for any goodwill. The withdrawing partner is also liable liable to the remaining partners for any damages created by his breach of the partnershi partnership p agreement. A partner forced to withdraw, withdraw, however, is entitled entitled to his full interest in the partnership, including any goodwill.
BUSINESS ETHICS SOLUTIONS
Busine Business ss ethics ethics solution solutions s are merely merely sugges suggestio tions ns of points points to address address.. The obje object ctiv ive e is to rais raise e the the stud studen entts' awar awaren enes ess s of the the topi topics cs,, and and to invi invite te discussion. discussion. In most cases, there is clear room room for disagreemen disagreementt or conflicti conflicting ng viewpoints. 1. The defined benefit plan creates a challenge for a firm in a fluctuating market. If the firm is simultaneously struggling with other financial issues, its manager may indeed consider reducing or eliminating the plan. However, such a decision should not be taken lightly, as it it would remove an important and valuable benefit to its its employees. Certainly, there would be no reason, reason, particularly when the plan is fully funded as it is here, to eliminate any of the previously accrued benefits. However, the firm may wish to revisit the types of benefits offered in the future. One alternative is to switch to a defined defined contribution plan. This plan is somewhat less less appealing to the employee, but
•
Employees derive satisfaction from being associated with, and expect better treatment from, responsible firms.
•
The The more more diff diffic icul ultt the the skil skilll set set and and know knowle ledg dge e requ requir irem emen ents ts for for the the empl employ oyee ees’ s’ posi positi tion on are are to fill fill,, the the more more like likely ly that that empl employ oyee ee is to be influenced by such benefits as pension plans and such considerations as social responsibility of the firm.
•
Workers are also investors and, more importantly, consumers. The firms must not only hire and contract with its employees, but also motivate them to perform at their maximum maximum level of of effort. Disgruntled workers workers can erode a firm’s goodwill. As discussed above, unions and other groups prefer to deal with worker-friendly firms.
For additional information, see the following link: http://home.law.uiuc.edu/~ribstein/ribsteinpartnershipsocialresponsibility1229.pdf ANSWERS TO EXERCISES Exercise 15-2 Part A (1)
Cash Accounts Receivable Office Supplies Office Equipment Accounts Payable Tom, Capital
13,000 8,000 2,000 30,000
C h
12 0 00
2,000 51,000
Tom, Drawing Julie, Drawing
Part B
15,000 12,000
TOM AND JULIE PARTNERSHIP Statement of Changes in Partners' Capital For the Year Ended December 31, 2004
Capital balances, Jan. 1 Add: Additional investments Net income allocation Totals Less: Withdrawals Capital balances, Dec. 31
Tom $ 0 51 ,000 33,553 8 4 ,55 3 15,000 $69,553
Julie $ 0 25,000 16,447 41,447 12,000 $29,447
Total $ 0 76,000 50,000 126,000 27,000 $99,000
Exercise 15-3
Jones $ 4 ,0 0 0 24,000 28,000 16,000 $44,000
1
Interest on capital Salary (12 months) Total Remainder divided equally Income allocation
2
Interest on capital and salary Exce Ex cess ss allo allocat catio ion n ($38, ($38,30 300 0 - $51 $51,5 ,500) 00)
$28,000 (4,4 (4,400 00))
Silva Thompson $2,500 $3,000 0 18,000 2,500 21,000 16,000 16,000 $18,500 $37,000
$2,500 (4,400)
$21,000 (4,400 )
3
Total $9,500 42,000 51,500 48,000 $99,500
$51,500 (13,200 )
Income allocation
$23,600
$(1,900)
$16,600
$38,300
Interest on capital and salary Exce Ex cess ss allo allocat catio ion n (-$ (-$15 15,10 ,100 0 -$51 -$51,5 ,500) 00)
$28,000 (22, (22,20 200 0
$2,500 (22,200) (22,200)
$21,000 (22,200)
$51,500 (66,600)
$5,800
$(19,700)
$(1,200)
$(15,100)
) Net loss allocation
Exercise 15-4
Salary Interest Total Excess allocation (-$20,000 - $61,000) Net loss allocation
Mary $20,000 8,000 28,000 (40,500 ) $(12 500)
Nancy $ 2 5 ,0 0 0 8,000 33,000 (40,500) (40,500) $(7 500)
Total $45,000 16,000 61,000 (81,000) $(20 000)
Exercise 15-5 (continued)
Schedule 1 - Bonus Calculation B = .10 × (income after salaries - B) B = .10 × [($188,000 - $108,000) - B] B = .10 × ($80,000 - B) B = $8,000 - .10 × B 1.10 × B = $8,000 B = $7,273 Proof: Net Income Salaries Bonus Net income subject to bonus B = .10 × $72,727 B = $7,273
$188,000 (108,000) (7,273) $72,727
Exercise 15-6
Balances before income allocation and cash distribution Incom ncomee allo alloca cate ted d (Sch (Sched edul ulee 1) Cash distributed (note 1)
Hill Hi ll $70,000
Jone Jo ness $2 1 ,800
Vose Vo se $(11,700)
Tota To tall $ 80 ,100
59,2 59,263 63
18,0 18,030 30
30,7 30,70 0 7 19,007
108,000
129,263 91,249 (1)
39,830 33,494 (2 )
188 ,100 124,743
Exercise 15-7
1. Phoenix, Capital Dallas, Capital
22,500
2. Phoenix, Capital Tucson, Capital Dallas, Capital
18,000 10,000
3. Cash
60,000
22,500
28,000
Phoenix, Capital ($60,000 - $40,000) × .50 Tucson, Capital Dallas, Capital
10,000 10,000 40,000
($90,000 + $50,000) + $60,000 = $200,000; Therefore, no goodwill is to be recognized. Dallas, capital = $200,000 × 0.20 = $40,000 4. Goodwill Phoenix, Capital Tucson, Capital
20,000 10,000 10,000
$40,000/0.20 = $200,000 Goodwill = $200,000 - ($90,000 + $50,000 + $40,000) = $20,000 Cash
40,000 Dallas, Capital
Exercise 15-8
40,000
Exercise 15-8 (continued)
6. Bi Bill, Capital ($2,980 × .70) Jane, Capital Income Summary
2,086 8 94 2,980
7. Total capital implied in contract ($14,000/ (1/3)) $42,000 Minus capital capital balances balances + Mike’s Mike’s investment investment [($12,000 [($12,000 + $8,000 $8,000 - $2,980) + $14,000] $14,000] 31,020 Goodwill $10,980 Entries to record Mike’s admission: Goodwill Bill, Capital Jane, Capital ($10,980 × .30) Cash
10,980 7,686 3,294 14,000
Mike, Capital
Exercise 15-10
1. d
($12 ($125, 5,00 000 0 + $250 $250,0 ,000 00 - $25, $25,00 000) 0) = $35 $350, 0,00 000 0
2. c
$60, $60,00 000 0 is is the the fair fair valu valuee of of the the land land inve invest sted ed
3. c
$10,0 $10 ,000 00 int inter eres estt + $14 $14,1 ,175 75 bonu bonuss + $6,77 $6,775 5 unde undera rall lloca ocati tion on
4. c
Tom Jim
$80,000 - (0.6 × $10,000) $50,000 (0.4 $10,000)
14,000
B o nu s
7,500 52,500 (1,250) (1,250) $51,250
__ __ __ _ (1,250) $(1,250)
7,500 52,500 (2,500) $50,000
Exercise 15-12 Part A
Interest on beginning capital Salary Bonus Remainder divided equally Allocation Total
Su e $ 6,000 25,000 _ __ __ _ 31,000 10,500 $41,500
Josh $ 8,000 21,000 9,000 38,000 10,500 $ 4 8 ,5 0 0
Total $ 14 ,000 4 6 ,0 0 0 9 ,0 0 0 6 9 ,000 2 1 ,0 0 0 $ 90 ,0 00
Su e $6,000 25,000
Josh $ 8 ,0 0 0 2 1 ,0 0 0 8,182 3 7 ,18 2 10,909 $ 4 8 ,0 9 1
Total $ 1 4 ,0 0 0 46 ,00 0 8 ,1 8 2 6 8 ,18 2 2 1 ,8 1 8 $ 90 ,0 00
Josh $ 8 ,0 0 0 21,000 2,727
Total $ 1 4 ,0 0 0 4 6 ,00 0 2 ,7 2 7
Calculation of bonus: 0.10 × $90,000 = $9,000
Part B
Interest on capital Salary Bonus Remainder divided equally Total Allocation Calculation of bonus:
Part C
Interest on capital Salary Bonus
B= B= 1.1 × B = B=
31,000 10,909 $41,909 0.10 × ($90,000 - B) $9,000 - 0.1 × B $9,000 $8,182 Su e $6,000 25,000
Exercise 15-13 Part A
Inventory Land Kazma, Capital ($27,000 × 0.4) Folkert, Capital ($27,000 × 0.4) Tucker, Capital ($27,000 × 0.2)
8,000 19,000 10,800 10,800 5,400
Part B 1. Bonus
Tucker, Capital ($45,000 + $5,400) Kazma, Capital ($4,600 × 0.5) Folkert, Capital ($4,600 × 0.5) Cash Note Payable
50,400 2,300 2,300 15,000 40,000
2. Parti Partial al goodwil goodwilll recorded recorded Goodwill ($15,000 + $40,000 – $50,400) Tucker, Capital Tucker, Capital ($45,0 5,000 + $5,40 ,400 – $4,600) 00) Cash Note Payable 3. Full Full goodwil goodwilll recorde recorded d
4,600 4,600 55,000 000 15,000 40,000
ANSWERS TO PROBLEMS Problem 15-1
1. If the agreement agreement does not provide provide for a profit-s profit-sharin haring g ratio, the UPA provides provides that that profits profits are to be shared equally. Therefore Day and Night would each get $34,200 allocation. 2. Day Allocation 0.60 0.60 × $68,400 = NightAllocation 0.40 × $68,400 = Total
$41,040 27,360 $68,400 Da y $75,000 56,250 (18,750) $112,500
3. Ca Capital Balance 1/1 + Investments - Withdrawals Balance 12/31
Night $37,500 18,750 (9,375) $46,875
Total $112,500 75,000 (28,125) $159,375
Profit Allocation: Day: Night:
$112 ,500 $159 ,375 $46 ,875 $159 ,375
$68 ,400
×
$68 ,400
×
=$48,282 = 20,118 $68,400
4. 1/1 Balance Withdrawal 4/1
$18,750
Portion of Year Day Maintained $75,000 × 3/12 56,250 × 2/12
Weighted Average $18,750 9,375
Average Balance
Problem 15-1 (continued)
Da y 5. Interest on average balance *$ 12,891 Salaries 15,000 27,891 Remainder of $25,579 divided equally 12,790 $40,681 * **
Night **$ 6,680 8,250 14,930 12,789 $27,719
Total $ 19,571 23,250 42,821 25,579 $68,400
0.15 × $85,938 = $12,891 (see part 4) 0.15 × $44,532 = $6,680 (see part 4)
Problem 15-3
Adjustments to 2007 Income
2. Prepaid insurance expensed in 2007 Prepaid insurance expensed in 2008
$800 ---
Advances from customers in 2007 Advances from customers in 2008
(1,500) ---
Accrued interest expense 3. Add back provision for inventory decline 4. Add back purchase purchase price price of equipment equipment expensed expensed
(450)
$(800)a 7 00 1,500 b (900) 450c 8,000
(1,200)
3,520d 160e
$(2,350)
(5,000) $7,630
less depreciation expense of $880 5. Deduct (add) adjustment to allowance account 6. De D educt goodwill recognized Total adjustment to capital accounts
Adjustments to 2008 Income
During 2008, $1,800 was written off and debited to expense Adjustment to income is $160 or ($1,800 - $1,640) Analysis of Change in Capital Accounts
Cain Gallo Hamm
1/3 1/3 1/3
*Number is rounded:
2007 Adjustment $(783) (783) (784) $(2,350)*
$2,350 = $783 .33 3
0.40 0.40 0.20
2008 Adjustment $3,052 3,052 1,526 $7,630
Total $2,269 2,269 7 42 $5,280
Problem 15-3 (continued)
Cain, Gallo, and Hamm Partnership Adjusted Trial Balance December 31, 2008
Unadjusted Balance Dr. Cr. Cash $15,000 Accounts Receivable 40,000 Inventory 30,000 Land 9,000 Buildings 50,000 Allowance for Depreciation of Buildings 6,000 Equipment 56,000 Allowance for Depreciation of Equipment 6,000 Goodwill 5,000 Accounts Payable 56,000 Allowance for Future Inventory Losses 8,000 Cain, Capital 37,000 Gallo, Capital 60,000 Hamm, Capital 32,000 Prepaid Insurance Advances from Customers Allowance for Doubtful Accounts _ __ _ _ _ _ _ _ __ _ _ _ $205,000 $205,000
Adjustment Dr Cr
4,400 88 0 5,000
Adjusted Balan alancce 12/31/2008 Dr. Cr. $15,000 40,000 30,000 9,000 50,000 6,000 60,400 6,880 56,000
8,000 2,269 2,269 742 7 00 _______ $13,100
15 - 15
39,269 62,269 32,742
7 00 90 0 9 00 1,040 _______ 1,040 $13,100 $205,100 $205,100
Problem 15-4
1. Book value value of interest interest acquired acquired = ($180,000 ($180,000 + $90,000) $90,000) × 1/3 = $90,000 Bonus Method Cash
90,000 Moore, Capital
90,000
2. Book value value of interest interest acquired acquired = ($180,000 ($180,000 + $120,000) $120,000) × 0.45 = $135,000 Book value of interest is greater than assets invested. Bonus Method Cash Brown, Capital (0.60 × $15,000) Coss, Capital (0.40 × $15,000) Moore, Capital
120,000 9,000 6,000 135,000
The goodwill method is not applicable because the partners agreed to total capital interest of $300,000. 1
3. Book value value of interest interest acquired acquired ($180,000 ($180,000 + $120,000) $120,000) ×
3
= $100,000
Bonus method can not be used because Moore will not accept less than $120,000 capital interest. Goodwill Method Total capital implied from contract [$120,000/(1/3)] Minus Minus curren currentt capi capital tal balance balance + Moor Moore's e's invest investmen mentt ($180 ($180,000 ,000 + $120, $120,000) 000) Goodwill
$360,000 300,000 300,000 $60,000
Problem 15-4 (continued)
5. Book value value of interest interest acquired acquired ($180,000 ($180,000 + $35,000) $35,000) × 0.20 = $43,000 Book value of interest acquired is greater than the asset invested. Goodwill Method Total capital $225,000 Minus recorded recorded value value of net net assets assets + Moore's Moore's investm investment ent ($180,000 ($180,000 + $35,000) $35,000) 215,000 Goodwill $10,000 Cash Goodwill Moore, Capital
35,000 10,000 45,000
6. Book value value of interest interest acquired acquired ($180,000 ($180,000 + $150,000) $150,000) × (1/3) = $110,000 Book value of interest acquired is less than asset invested. Bonus Method Land
150,000 Brown, Capital (0.60 × $40,000) Coss, Capital (0.40 × $40,000) Moore, Capital
24,000 16,000 110,000
Goodwill Method Net value of firm implied by contract [$150,000/(1/3)] Minus current capital + Moore's investment ($180,000 + $150,000) Goodwill
$45 0 ,000 33 0 ,00 0 $ 1 2 0 ,0 0 0
Problem 15-5 Part A
1. Bad Debt Expense Allowance for Doubtful Accounts (0.05 × $33,600 = $1,680)
1,680
2. Inventory Unrealized Gain on Revaluation of Inventory ($41,250 - $35,750 = $5,500)
5,500
3. Land
1,680
5,500
38,000 Unrealized Gain on Revaluation of Land ($65,000 - $27,000 = $38,000)
38,000
4. Unrealized Loss on Revaluation of Building Building ($41,600 - $32,750 = $8,850)
8,850
5. Operating Expenses Accrued Liabilities
3,275
8,850
3,275
6. Total adjustment adjustment to capital capital accounts accounts is $29,695 (credit) (credit) Unrealized Gain on Revaluation of Inventory Unrealized Gain on Revaluation of Land Bad Debt Expense Unrealized Loss on Revaluation of Building Operating Expenses Cox, Capital (0.40 × $29,695) Andrews, Capital (0.30 × $29,695)
5,500 38,000 1,680 8,850 3,275 11,878 8,909
Problem 15-5 (continued) Part C
CAB & M Partnership Balance Sheet December 31, 2008 Assets Cash ($8,000 + $20,305) Accounts Receivable Allowance for Doubtful Accounts Inventory Land Building (net of depreciation) Equipment (net of depreciation) Total Assets
$ 2 8 ,3 0 5 $33,600 1,680
Liabilities and Capital Accounts Payable Other Current Liabilities ($6,750 + $3,275) Long-Term Note (8% due 2012) Cox, Capital Andrews, Capital Bennet, Capital Meyers, Capital Total Liabilities and Capital
Before Adj stment
Adj stment
3 1 ,920 4 1 ,2 5 0 6 5 ,00 0 3 2 ,7 5 0 2 7 ,2 5 0 $2 26 ,475
$3 2 ,45 0 10 ,025 34 ,000 42 ,50 0 2 8 ,7 5 0 41 ,250 3 7 ,50 0 $22 6 ,47 5
Bonus to Me ers
Balance
Problem 15-6
Entry to be made before recording the withdrawal of Allen Inventory Interest Payable ($22,000 × 0.08 × 4/12) Dave, Capital ($5,413 × 0.50) Allen, Capital ($5,413 × 0.30) Matt, Capital ($5,413 × 0.20)
6,000 587 2 ,7 0 6 1 ,6 2 4 1 ,0 8 3
Allen now has a capital balance of $111,624 or ($110,000 + $1,624) 1. Allen, Capital Cash Note Payable
111,624
2. Allen, Capital Matt, Capital
111,624 111,624
3. Allen, Capital Dave, Capital (50/70 × $13,376) Matt, Capital (20/70 × $13,376) Cash Equipment
111,624 9,554 3,822
4. Allen, Capital Dave, Capital (50/70 × $11,624) Matt, Capital (20/70 × $11,624)
111,624
36 ,624 7 5 ,0 0 0
35 ,000 9 0 ,0 0 0
8,303 3,321
Problem 15-7
1. Capital balances before withdrawal Allocate goodwill* Withdrawal of Neal Write-off Impaired Goodwill ($125,000 × 0.50)
Neal $250,000 50,000 300,000 (300,000)
Palmer $150,000 37,500 187,500 _ __ ___ _ 187,500 (62,500) $125,000
Ruppe $100,000 37,500 137,500 _______ 137,500 (62,500) $75,000
$125,000
$75,000
Neal $250,000 50,000 300,000 (300,000) -0-
Palmer $150,000 37,500 187,500 _ __ ___ _ 187,500
Ruppe $100,000 37,500 137,500 _______ 137,500
_ _ _ ___ __ $ -0-
(75,000) _ ___ __ _ $112,500
(50,000) $87,500
$125,000
$75,000
_______ $ 0
Capital balances using the bonus method** 2. Capital balances before withdrawal Allocation of goodwill* Withdrawal of Neal Write-off Impaired Goodwill $125,000 × 0.60 $125,000 × 0.40 Capital balances using the bonus method** *Goodwill computation: Excess payment payment = $300,000 $300,000 - $250,000 = $50,000 Total Total goodwi goodwill ll =
$50 ,000 0 40
= $125,000
Problem 15-9 Part A
DISCOUNT PARTNERSHIP Worksheet to Adjust and Combine the Partnerships' Accounts June 30, 2008 Up & Down Trial Balance J u n e 3 0 , 2 00 8
Cash Accounts Receivable Allowance for Doubtful Accounts Merchandise Inventory Land Buildings & Equipment Allowance For Depreciation Prepaid Expenses Accounts Payable Notes Payable Accrued Expenses Up, Capital
$25,000 90,000
Back & Forth Trial Balance J u n e 3 0 , 20 0 8 $20,000 1 40 ,0 0 0
180,000 25,000 80,000
6,000 11 5 ,0 00 35,000 1 25 , 00 0
24,000 6,000
(1) 1,600
(4) 15,040
65,000
Forth, Capital
139,000
$443,0 $44 3,000 00
1 00 ,04 0 14,000
54,000 74,000 44,000
Back, Capital
$406,0 $40 6,000 00
9 ,2 0 0 323,750 60,000 205,000
8,000
144,000
$406,0 $40 6,000 00
(2) 40 400 (3) 28,750
61,000
42,000 65,000 34,000 95,000
Discount Stores Beginning Balances $45,000 230,000
2,000
Down, Capital
Four Partners' Adjusting and Combining Entries
(1) (4) (1) (4) (5) (6) (7) (5) (6)
6 40 6,016 96 0 9,024 1,200 1,200 3,845 2,800 2, 2,800
(5)
4,000
(6) (7)
4,000 1,656
10 0 ,0 00 1 3 9 ,0 00 82 , 00 0 90 ,00 0
(7)
9 84
13 5 ,0 0 0
(2) (3)
120 8, 8 , 6 25
67 ,5 0 0
(2) 2 80 (3) 20,125 (7) 3,695
1 5 7 ,5 0 0
$443,0 $44 3,000 00
Goodwill
(7) 2,490 $60,12 $60 ,125 5
15 - 22
$60,12 $60 ,125 5
2,490 $880,2 $88 0,240 40
$880,2 $88 0,240 40
Problem 15-9 (continued)
(1,2)
To adjust adjust allowan allowance ce for doubtful doubtful accounts accounts to 4% of receivabl receivables. es. Up and Down: $90,000 × 0.04 = $3,600 - $2,000 = $1,600 credit Back and Forth: $140,000 × 0.04 = $5,600 - $6,000 = $400 debit
(3) (3)
To adjus adjustt inven invento tory ry to FIFO FIFO valu valuat atio ion n meth method od
(4)
To adjust adjust the the allowance allowance for for depreciatio depreciation n account account to an accumulation accumulation of of depreciatio depreciation n for 3 years computed computed by the the double-decli double-declining ning balance method
0.80 0.80 × X = $115,000 X = $143,750 - $115,000 = $28,750
Desi Desire red d accu accumu mula late ted d dep depre reci ciat atio ion n bal balan ance ce:: $16 $16,0 ,000 00 + $12, $12,80 800 0 + $10, $10,24 240* 0* Depreciation provided Adjustment needed * $80,0 $80,000 00 × 0.20 = $16,000 $64,000 × 0.20 = $12,800 $51,200 × 0.20 = $10,240 (5) (5) (6) (6) (7) (7)
=
$39, $39,04 040 0 24,000 $15,040
To recor record d unr unrec ecor orde ded d mer merch chand andis isee purch purchas asee To reco record rd vaca vacati tion on pay pay accr accrua uall ($2 ($200 00 × 10 × 2) To adju adjust st capi capita tall acc accou ount nt as agre agreed ed Unadjusted Capital Balances Net Adjustments Adjusted Capital Balance Opening Capital Balances* Distribution of Goodwill ( ) debit * Up $450,0 $450,000 00 × Down Down $450, $450,00 000 0× Back $450,0 0,000 × Fort Forth h $450 $450,0 ,000 00 ×
Up $95,000 (6,656 ) 88,344 90,000 $1,656
Down $144,000 (9,9 (9 ,984 84)) 134,016 135,000 $984
0.20 = $90,000 0.30 = $135,000 0.15 = $67,500 0.35 = $157,500
(0.20 + 0.30)X = $225,000 X = $450,000 15 - 23
Back $65,000 6,345 71,345 67,500 $(3,845)
Forth $139,000 14,805 153,805 157,500 $3,695
Total $443,000 4,510 447,510 450,000 $2,490
Problem 15-9 (continued) Part B
Computation of Cash Settlement Between Partners
Total Adjusted Capital Balances Excluding Goodwill Capital in Excess of Book Value Opening Capital Balances Settlement Between Parties
$ 2 2 2 ,3 60 2,640 225,000 225,000 $0
Between Up & Down Up $88,344 1,056 89,400 90,000 $60 0
$2,640 × 0.40 = $1,056 $2,640 × 0.60 = $1,584
15 - 24
Down
Total
$134,016 1,584 135,600 135,000 $(600)
$225,150 (150) 225,000 225,000 $0
Between Back & Forth Back $71,345 (45) (45) 71,300 67,500 $(3,800)
($150) × 0.30 = ($45) ($150) × 0.70 = ($105)
Forth $153,805 (105) (105) 153,700 157,500 $3,8 $3 ,800 00
