Chapter Review
12-7gProblems: Series A
Entries and balance sheet for partnership
OBJ. 2
On March 1, 20Y8, Eric Keene and Renee Wallace form a partnership. Keene agrees to invest $23,400 in cash and merchandise inventory valued at $62,600. Wallace invests certain business assets at valuations agreed upon, transfers business liabilities, and contributes sufficient cash to bring her total capital to $60,000. Details regarding the book values of the business assets and liabilities, and the agreed valuations, follow:
The partnership agreement includes the following provisions regarding the division of net income: interest on original investments at 10%, salary allowances of $19,000 (Keene) and $24,000 (Wallace), and the remainder equally.
Instructions
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Journalize the entries to record the investments of Keene and Wallace in the partnership accounts.
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Prepare a balance sheet as of March 1, 20Y8, the date of formation of the partnership of Keene and Wallace.
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After adjustments at February 28, 20Y9, the end of the first full year of operations, the revenues were $300,000 and expenses were $230,000, for a net income of $70,000. The drawing accounts have debit balances of $19,000 (Keene) and $24,000 (Wallace). Journalize the entries to close the revenues and expenses and the drawing accounts at February 28, 20Y9.
AnswerCheck Figure: Keene net income, $33,800
Dividing partnership income
OBJ. 2
Black and Shannon have decided to form a partnership. They have agreed that Black is to invest $360,000 and that Shannon is to invest $120,000. Black is to devote one-half time to the business, and Shannon is to devote full time. The following plans for the division of income are being considered:
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Equal division
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In the ratio of original investments
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In the ratio of time devoted to the business
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Interest of 6% on original investments and the remainder equally
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Interest of 6% on original investments, salary allowances of $96,000 to Black and $168,000 to Shannon, and the remainder equally
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Plan (e), except that Shannon is also to be allowed a bonus equal to 20% of the amount by which net income exceeds the total salary allowances
Instructions
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For each plan, determine the division of the net income under each of the following assumptions: (1) net income of $276,000 and (2) net income of $480,000. Present the data in tabular form, using the following columnar headings:
$276,000 $480,000 Plan Black Shannon Black Shannon AnswerCheck Figure: f. Black net income, $108,000
Financial statements for partnership
OBJ. 2, 5
The ledger of Tyler Lambert and Jayla Yost, attorneys-at-law, contains the following accounts and balances after adjustments have been recorded on December 31, 20Y3:
The balance in Yost’s capital account includes an additional investment of $10,000 made on April 10, 20Y3.
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Prepare an income statement for 20Y3, indicating the division of net income. The partnership agreement provides for salary allowances of $45,000 to Lambert and $54,700 to Yost, allowances of 10% on each partner’s capital balance at the beginning of the fiscal year, and equal division of the remaining net income or net loss.
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Prepare a statement of partnership equity for 20Y3.
AnswerCheck Figure: Dec. 31 capital—Yost, $125,000
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Prepare a balance sheet as of the end of 20Y3.
Admitting new partner
OBJ. 3
Musa Moshref and Shaniqua Hollins have operated a successful firm for many years, sharing net income and net losses equally. Taylor Anderson is to be admitted to the partnership on July 1 of the current year, in accordance with the following agreement:
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Assets and liabilities of the old partnership are to be valued at their book values as of June 30, except for the following:
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Accounts receivable amounting to $2,500 are to be written off, and the allowance for doubtful accounts is to be increased to 5% of the remaining accounts.
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Merchandise inventory is to be valued at $76,600.
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Equipment is to be valued at $155,700.
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Anderson is to purchase $70,000 of the ownership interest of Hollins for $75,000 cash and to contribute another $45,000 cash to the partnership for a total ownership equity of $115,000.
The post-closing trial balance of Moshref and Hollins as of June 30 is as follows:
Instructions
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Journalize the entries as of June 30 to record the revaluations, using a temporary account entitled Asset Revaluations. Debits and credits to the asset revaluations account are losses and gains from revaluation, respectively. The balance in the accumulated depreciation account is to be eliminated. After journalizing the revaluations, close the balance of the asset revaluations account to the capital accounts of Musa Moshref and Shaniqua Hollins.
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Journalize the additional entries to record Anderson’s entrance to the partnership on July 1, 20Y7.
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Present a balance sheet for the new partnership as of July 1, 20Y7.
AnswerCheck Figure: Total assets, $326,300
Statement of partnership liquidation
OBJ. 4
After the accounts are closed on February 3, prior to liquidating the partnership, the capital accounts of William Gerloff, Joshua Chu, and Courtney Jewett are $19,300, $4,500, and $22,300, respectively. Cash and noncash assets total $5,200 and $55,900, respectively. Amounts owed to creditors total $15,000. The partners share income and losses in the ratio of 2:1:1. Between February 3 and February 28, the noncash assets are sold for $34,300, the partner with the capital deficiency pays the deficiency to the partnership, and the liabilities are paid.
Instructions
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Prepare a statement of partnership liquidation, indicating (a) the sale of assets and division of loss, (b) the payment of liabilities, (c) the receipt of the deficiency (from the appropriate partner), and (d) the distribution of cash.
AnswerCheck Figure: Gerloff, $8,500
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Assume that the partner with the capital deficiency declares bankruptcy and is unable to pay the deficiency. Journalize the entries to (a) allocate the partner’s deficiency and (b) distribute the remaining cash.
Statement of partnership liquidation
OBJ. 4
On November 1, the firm of Bowes, Simmons, and Ahmed decided to liquidate its partnership. The partners have capital balances of $69,000, $85,000, and $12,000, respectively. The cash balance is $38,000, the book values of noncash assets total $152,000, and liabilities total $24,000. The partners share income and losses in the ratio of 2:2:1.
Instructions
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Prepare a statement of partnership liquidation, covering the period November 1–30, for each of the following independent assumptions:
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All of the noncash assets are sold for $185,000 in cash, the creditors are paid, and the remaining cash is distributed to the partners.
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All of the noncash assets are sold for $65,000 in cash, the creditors are paid, the partner with the debit capital balance pays the amount owed to the firm, and the remaining cash is distributed to the partners.
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Assume that the partner with the capital deficiency in part (b) declares bankruptcy and is unable to pay the deficiency. Journalize the entries to (a) allocate the partner’s deficiency and (b) distribute the remaining cash.