Exam 16: Partnerships - Formation,operations,and Changes in Ownership Interests

Greta,Harriet,and Ivy have a retail partnership business selling personal computers.The partners are allowed an interest allocation of 6% on their average capital.Capital account balances on the first day of each month are used in determining weighted average capital,regardless of additional partner investment or withdrawal transactions during any given month.Withdrawals of capital that are debited to the capital account are used in the average calculation.Partner capital activity for the year was: Required: Calculate weighted average capital for each partner,and determine the amount of interest that each partner will be allocated.Round all calculations to the nearest whole dollar.

Austin contributes his computer equipment to the landscaping partnership he starts with Bentley.At what amount should the computer equipment be credited to Austin's partnership capital?

Use the following information to answer the question(s)below. Adam,Bella,and Chris operate a partnership with a complex profit and loss sharing agreement.The average capital balance for Adam,Bella and Chris on December 31,2011 is $120,000,$270,000,and $340,000,respectively.A 6% interest allocation is provided to each partner based on the average capital balance on December 31,2011.Adam and Bella receive salary allocations of $40,000 and $50,000,respectively.If partnership net income is above $160,000,after the salary allocations are considered (but before the interest allocations are considered),Chris will receive a bonus of 10% of the income (pre-salary and interest,but net of the bonus).All residual income is allocated in the ratios of 2:2:6 to Adam,Bella,and Chris,respectively. -Required: 1.Prepare a schedule to allocate income to the partners assuming that partnership net income for 2011 is $330,000. 2.Prepare a journal entry to distribute the partnership's income to the partners (assume that an Income Summary account is used by the partnership).

On February 1,2011,George,Hamm,and Ishmael began a partnership in which George and Ishmael each contributed cash of $25,000;and Hamm contributed property with a fair value of $50,000 and a tax basis $40,000.Hamm receives a 5% bonus of partnership income.George and Ishmael receive salaries of $10,000 each.The partnership agreement of George,Hamm,and Ishmael provides that all partners receive 5% interest on capital,and that profits and losses of the remaining income be distributed to George,Hamm,and Ishmael by a 1:3:1 ratio. Required: Prepare a schedule to distribute $25,000 of partnership net income to the partners.

Use the following information to answer the question(s)below. Xavier,Young,and Zane operate a partnership with a complex profit and loss sharing agreement.The average capital balance for each partner on December 31,2011 is $300,000 for Xavier,$250,000 for Young,and $325,000 for Zane.An 8% interest allocation is provided to each partner based on the average capital balance on December 31,2011.Xavier and Young receive salary allocations of $10,000 and $15,000,respectively.If partnership net income is above $25,000,after the salary allocations are considered (but before the interest allocations are considered),Zane will receive a bonus of 10% of the original amount of net income.All residual income is allocated in the ratios of 2:3:5 to Xavier,Young,and Zane,respectively. -Required: 1.Prepare a schedule to allocate income or loss to the partners assuming that the partnership incurs a net loss of $36,000 for 2011. 2.Prepare a journal entry to distribute the partnership's loss to the partners (assume that an Income Summary account is used by the partnership).

A summary balance sheet for the Uma,Van,and Walter partnership on December 31,2011 is shown below.Partners Uma,Van,and Walter allocate profit and loss in their respective ratios of 4:5:7.The partnership agreed to pay Walter $227,500 for his partnership interest upon his retirement from the partnership on January 1,2012.Any payments exceeding Walter's capital balance are treated as a bonus from partners Uma and Van. Required: Prepare the journal entry to reflect Walter's retirement.

A summary balance sheet for the partnership of Quail,Rainne and Selma on December 31,2011 is shown below.Partners Quail,Rainne and Selma allocate profit and loss in their respective ratios of 6:3:1. The partners agree to admit Trask for a one-tenth interest.The fair market value for partnership land is $260,000,and the fair market value of the inventory is $370,000. Required: 1.Record the entry to revalue the partnership assets prior to the admission of Trask. 2.Calculate how much Trask will have to invest to acquire a 10% interest. 3.Assume the partnership assets are not revalued.If Trask paid $300,000 to the partnership in exchange for a 10% interest,what would be the bonus that is allocated to each partner's capital account?

The profit and loss sharing agreement for the Tuttle,Upman,and Veer partnership provides for residual profits and losses to be allocated 2:3:6 to Tuttle,Upman,and Veer,respectively.In 2011,the partnership recorded $11,000 of net income that was properly allocated to the partners' capital accounts.On January 18,2012,after the books were closed for 2011,Tuttle discovered that the $16,500 payment for the partnership's liability and workers compensation insurance for 2012 was recorded as insurance expense when it was paid on December 28,2011. Required: Prepare the necessary correcting entry(s)for the partnership.

Use the following information to answer the question(s)below. Quincy has decided to retire from the partnership of Quincy,Robert,and Sam.The partnership will pay Quincy $400,000.Total partnership capital should be revalued based on the excess payment to Quincy.(Assume the book values of the assets listed below equals fair values. )A summary balance sheet for the Quincy,Robert,and Sam partnership appears below.Quincy,Robert,and Sam share profits and losses in a ratio of 1:1:3,respectively. -What partnership capital will Robert have after Quincy retires?

Use the following information to answer the question(s)below. A summary balance sheet for the Lemon,Mango,and Nobb partnership appears below.Lemon,Mango,and Nobb share profits and losses in a ratio of 2:3:5,respectively. The partners agree to admit Oran for a one-fifth interest.The fair market value of partnership land is appraised at $200,000 and the fair market value of inventory is $175,000.The assets are to be revalued prior to the admission of Oran and there is $30,000 of goodwill that attaches to the old partnership. -By how much will the capital accounts of Lemon,Mango,and Nobb increase,respectively,due to the revaluation of the assets and the recognition of goodwill?

Use the following information to answer the question(s)below. Alfred and Barne share profits and losses in a ratio of 2:3,respectively,after salary allowances,interest allowances and bonus allocations.Alfred and Barne receive salary allowances of $30,000 and $60,000,respectively,and both partners receive 10% interest based upon the balance in their capital accounts on January 1.Partners' drawings are not used in determining the average capital balances.Total net income for 2011 is $180,000.If net income after deducting the interest and salary allocations is more than $60,000,Barne receives a bonus of 5% of the original amount of net income. -If the partnership agreement provides a formula for the computation of a bonus to the partners,the bonus would be computed

A summary balance sheet for the Ash,Brown,and Curly partnership on December 31,2011 is shown below.Partners Ash,Brown,and Curly allocate profit and loss in their respective ratios of 2:1:1.The partnership agreed to pay partner Brown $135,000 for his partnership interest upon his retirement from the partnership on January 1,2012.The partnership financials on January 1,2012 are: Required: Prepare the journal entry to reflect Brown's retirement from the partnership: 1.Assuming a bonus to Brown. 2.Assuming a revaluation of total partnership capital based on excess payment. 3.Assuming goodwill equal to the excess payment is recorded.

Use the following information to answer the question(s)below. Quincy has decided to retire from the partnership of Quincy,Robert,and Sam.The partnership will pay Quincy $400,000.Total partnership capital should be revalued based on the excess payment to Quincy.(Assume the book values of the assets listed below equals fair values. )A summary balance sheet for the Quincy,Robert,and Sam partnership appears below.Quincy,Robert,and Sam share profits and losses in a ratio of 1:1:3,respectively. -What goodwill will be recorded?

The profit and loss sharing agreement for the Mason,Nell,and Odell partnership provides for a $15,000 salary allowance to Nell.Residual profits and losses are allocated 5:3:2 to Mason,Nell,and Odell,respectively.In 2010,the partnership recorded $120,000 of net income that was properly allocated to the partners' capital accounts.On January 25,2011,after the books were closed for 2010,Mason discovered that office equipment,purchased for $12,000 on December 29,2010,was recorded as office expense by the company bookkeeper. Required: Prepare the necessary correcting entry(s)for the partnership.

Use the following information to answer the question(s)below. Xavier,Young,and Zane operate a partnership with a complex profit and loss sharing agreement.The average capital balance for each partner on December 31,2011 is $300,000 for Xavier,$250,000 for Young,and $325,000 for Zane.An 8% interest allocation is provided to each partner based on the average capital balance on December 31,2011.Xavier and Young receive salary allocations of $10,000 and $15,000,respectively.If partnership net income is above $25,000,after the salary allocations are considered (but before the interest allocations are considered),Zane will receive a bonus of 10% of the original amount of net income.All residual income is allocated in the ratios of 2:3:5 to Xavier,Young,and Zane,respectively. -Required: 1.Prepare a schedule to allocate income to the partners assuming that partnership net income for 2011 is $250,000. 2.Prepare a journal entry to distribute the partnership's income to the partners (assume that an Income Summary account is used by the partnership).

Use the following information to answer the question(s)below. Quincy has decided to retire from the partnership of Quincy,Robert,and Sam.The partnership will pay Quincy $400,000.Total partnership capital should be revalued based on the excess payment to Quincy.(Assume the book values of the assets listed below equals fair values. )A summary balance sheet for the Quincy,Robert,and Sam partnership appears below.Quincy,Robert,and Sam share profits and losses in a ratio of 1:1:3,respectively. -Which of the following is a reason to use a partnership as the legal form of a business?

Daniel,Ethan,and Frank have a retail partnership business selling personal computers.The partners are allowed an interest allocation of 8% on their average capital.Capital account balances on the first day of each month are used in determining weighted average capital,regardless of additional partner investment or withdrawal transactions during any given month.Withdrawals of capital that are debited to the capital account are used in the average calculation.Partner capital activity for the year was: Required: Calculate weighted average capital for each partner,and determine the amount of interest that each partner will be allocated.Round all calculations to the nearest whole dollar.

Dan and Ellie share partnership profits and losses at 70% and 30%,respectively.The partners agree to admit Fran into the partnership for a 50% interest in capital and earnings.Capital accounts immediately before the admission of Fran are: Required: 1.Prepare the journal entry(s)for the admission of Fran to the partnership assuming Fran invested $800,000 for the ownership interest,and that this is a fair price for that share of the partnership to be acquired.Fran paid the money directly to Dan and to Ellie for 50% of each of their respective capital interests.The partnership records goodwill. 2.Prepare the journal entry(s)for the admission of Fran to the partnership assuming Fran invested $1,000,000 for the ownership interest.Fran paid the money to the partnership for a 50% interest in capital and earnings.Assume the valuation is based on the capital of the current partnership,which is fairly valued.The partnership records goodwill. 3.Prepare the journal entry(s)for the admission of Fran to the partnership assuming Fran invested $1,400,000 for the ownership interest,and that this is a fair price for that share of the partnership to be acquired.Fran paid the money to the partnership for a 50% interest in capital and earnings.The partnership records goodwill.

Use the following information to answer the question(s)below. Alfred and Barne share profits and losses in a ratio of 2:3,respectively,after salary allowances,interest allowances and bonus allocations.Alfred and Barne receive salary allowances of $30,000 and $60,000,respectively,and both partners receive 10% interest based upon the balance in their capital accounts on January 1.Partners' drawings are not used in determining the average capital balances.Total net income for 2011 is $180,000.If net income after deducting the interest and salary allocations is more than $60,000,Barne receives a bonus of 5% of the original amount of net income. -The XYZ partnership provides a 10% bonus to Partner Y that is based upon partnership income,after deduction of the bonus.If the partnership's income is $140,000,how much is Partner Y's bonus allocation?

Anna and Bess share partnership profits and losses at 60% and 40%,respectively.The partners agree to admit Cal into the partnership for a 50% interest in capital and earnings.Capital accounts immediately before the admission of Cal are: Required: 1.Prepare the journal entry(s)for the admission of Cal to the partnership assuming Cal invested $400,000 for the ownership interest,and that this is a fair price for that share of the partnership to be acquired.Cal paid the money directly to Anna and to Bess for 50% of each of their respective capital interests.The partnership records goodwill. 2.Prepare the journal entry(s)for the admission of Cal to the partnership assuming Cal invested $500,000 for the ownership interest.Cal paid the money to the partnership for a 50% interest in capital and earnings.Assume the valuation is based on the capital of the current partnership,which is fairly valued.The partnership records goodwill. 3.Prepare the journal entry(s)for the admission of Cal to the partnership assuming Cal invested $700,000 for the ownership interest,and that this is a fair price for that share of the partnership to be acquired.Cal paid the money to the partnership for a 50% interest in capital and earnings.The partnership records goodwill.