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

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 31,2014 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 31,2014.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 or loss to the partners assuming that the partnership incurs a net loss of $26,200 for 2014. 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 partner assigned his partnership interest to a third party.Which statement best describes the legal ramifications to the assignee?

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. -On February 1,2014,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. 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. -In a limited partnership,a general partner

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.

Use the following information to answer the question(s)below. Bertram and Ernest share profits and losses equally after salary and interest allowances.Bertram and Ernest receive salary allowances of $40,000 and $60,000,respectively,and both partners receive 10% interest on their average capital balances.Average capital balances are calculated at the beginning of each month,regardless of when additional capital contributions or permanent withdrawals are made subsequently within the month.Partners' drawings of $3,000 per month are not used in determining the average capital balances.Total net income for 2014 is $240,000. -What is the weighted-average capital for Bertram and Ernest in 2014?

Use the following information to answer the question(s)below. Bertram and Ernest share profits and losses equally after salary and interest allowances.Bertram and Ernest receive salary allowances of $40,000 and $60,000,respectively,and both partners receive 10% interest on their average capital balances.Average capital balances are calculated at the beginning of each month,regardless of when additional capital contributions or permanent withdrawals are made subsequently within the month.Partners' drawings of $3,000 per month are not used in determining the average capital balances.Total net income for 2014 is $240,000. -If the average capital for Bertram and Ernest from the above information is $224,000 and $238,000,respectively,what will be the total amount of profit allocated to salary and interest distributions?

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. -What will the profit and loss sharing ratios be after Oran's investment?

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 31,2014 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 31,2014.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 2014 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).

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. 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. -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.

Under the Uniform Partnership Act,loans made by a partner to the partnership are treated as

A summary balance sheet for the Ash,Brown,and Curly partnership on December 31,2014 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 1,2015.The partnership financials on January 1,2015 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. -Which of the following is a reason to use a partnership as the legal form of a business?

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?

Partnerships

The Leo,Mark and Natalie Partnership had the following capital balances and profit/loss sharing percentages: Newsome is going to buy into the partnership by paying $200,000 for a 20% ownership in the partnership. Required: 1.If Newsome pays the partnership directly,what are the four partner capital balances immediately following Newsome's admission to the partnership using the bonus method? Assume the partnership assets are not revalued. 2.If Newsome pays the partnership directly,what are the four partner capital balances immediately following Newsome's admission to the partnership using the goodwill method? Assume the partnership assets are revalued.The $200,000 amount paid by Newsome is fair value for a 20% share of the partnership.

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 2014 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. -What is the total amount for the allocation of interest,salary,and bonus,and how much over-allocation is present?