95. What are the ways a partner can withdraw from a partnership? Explain how to account
for the withdrawal of a current partner from a partnership.
96. Explain the steps involved in the liquidation of a partnership.
12-42
97. What factors should be considered before establishing a partnership? What were some of
the areas that the partners of Hunks and Junk focused on before and after forming their
partnership?
Problems
98. Basketball Products LP is organized as a limited partnership that sells sporting equipment.
Information related to the two partner’s capital balances is given below. Compute the partner
return on equity for each limited partner. How would each partner evaluate the success of the
partnership? What would you recommend the partners do with respect to additional
investments or withdrawals?
Ball
Basquette
Capital balance, beginning of year
870,000
580,000
Net income for current year
85,000
55,000
Withdrawals for current year
40,000
25,000
99. Kathleen Reilly and Ann Wolf decide to form a partnership on August 1. Reilly invested
the following assets and liabilities in the new partnership:
Market Value
Land …………………………………………………….
$100,000
Building ……………………………………………….
300,000
Note payable …………………………………………
198,000
The note payable is associated with the building and the partnership will assume
responsibility for the loan. Wolf invested $60,000 in cash and $105,000 in equipment in the
new partnership. Prepare the journal entries to record the two partners’ original investments
in the new partnership.
100. Sierra and Jenson formed a partnership. Sierra contributed $25,000 cash and accounts
receivable worth $11,000. Jenson’s investment included cash, $5,000; inventory, $18,000;
and supplies, $1,000. Prepare the journal entries to record each partner’s investment in the
new partnership.
101. Arthur, Barnett, and Cummings form a partnership. Arthur contributes $250,000 cash
and Barnett contributes $230,000 in cash. Cummings contributes equipment worth $255,000.
Prepare the single journal entry to record the formation of this partnership.
102. Durango and Verde formed a partnership with capital contributions of $150,000 and
$190,000, respectively. Their partnership agreement called for Durango to receive a $50,000
annual salary allowance. They also agreed to allow each partner a share of income equal to
10% of their initial capital investments. The remaining income or loss is to be divided
equally. If the net income for the current year is $120,000, what are Durango’s and Verde’s
respective shares?
103. Juanita invested $100,000 and Jacque invested $95,000 in a new partnership. They
agreed to a $50,000 annual salary allowance to Juanita and a $40,000 annual salary allowance
to Jacque. They also agreed to an annual interest allowance of 10% on the partners’
beginning-year capital balance, with the balance to be divided equally. Under this agreement,
what are the income or loss shares of the partners if the annual partnership income is
$102,000?
104. Summers and Winters formed a partnership on January 1. Summers contributed
$90,000 cash and equipment with a market value of $60,000. Winters’ investment consisted
of: cash, $30,000; inventory, $20,000; all at market values. Partnership net income for year 1
and year 2 was $75,000 and $120,000, respectively.
1. Determine each partner’s share of the net income for each year, assuming each of the
following independent situations:
(a) Income is divided based on the partners’ failure to sign an agreement.
(b) Income is divided based on a 2:1 ratio (Summers: Winters).
(c) Income is divided based on the ratio of the partners’ original capital investments.
(d) Income is divided based on interest allowance of 12% on the original capital investments;
salary allowance to Summers of $30,000 and Winters of $25,000; and the remainder to be
divided equally.
2. Prepare the journal entry to record the allocation of the Year 1 income under alternative (d)
above.
105. Paco and Kate invested $99,000 and $126,000, respectively, in a partnership they began
one year ago. Assuming the partnership earned $120,000 during the current year; compute
the share of the net income each partner should receive under each of these independent
assumptions.
Paco’s Share Kate’s Share
1 The partnership contract
specifies salary allowances of
$45,000 to Paco and $60,000 to
Kate, and any balance shared
equally…………………………….. $ $
2 The partnership contract
specifies salary allowances of
$45,000 to Paco and $60,000 to
Kate, interest allowance of 10%
on the partners’ beginning year
capital balance and any $__________ $
balance shared equally ……………
106. Holden, Phillips, and Rogers are partners with beginning-year capital balances of
$120,000, $60,000, and $60,000, respectively. Partnership net income for the year is $84,000.
Make the necessary journal entry to close Income Summary to the capital accounts if:
a. Partners agree to divide income based on their beginning-year capital balances.
b. Partners agree to divide income based on the ratio of 5:3:2 (Holden:Phillips:Rogers),
respectively.
c. Partnership agreement is silent as to division of income and less.
107. Khalid, Dina, and James are partners with beginning-of-year capital balances of
$400,000, $320,000, and $160,000, respectively. The partners agreed to share income and
loss as follows: Salary of $30,000 to Khalid, $50,000 to Dina, and $55,000 to James. An
interest allowance of 10% on beginning-of-year capital balances. Any remaining balance is to
be divided equally. If partnership net income for the year is $190,000, determine each
partner’s share and make the appropriate journal entry to close the Income Summary to the
capital accounts.
108. Marquis and Bose agree to accept Sherman into their partnership. Sherman will
contribute $25,000 in cash. Prepare the journal entry to record this transaction.
109. Armstrong withdraws from the FAP Partnership. The remaining partners agree to buy
out her share for her capital balance of $35,000. Prepare the journal entry to record the
withdrawal from the partnership.
110. Alberts and Bartel are partners. On October 1, Alberts’ capital balance is $75,000, and
Bartel’s capital balance is $125,000. With the partnership’s approval, Bartel sells ½ of his
partnership interest to Camero for $70,000. Prepare the journal entry to record this
transaction in the partnership records.
111. Conley and Liu allow Lepley to purchase a 25% interest in their partnership for $35,000
cash. Lepley has exceptional talents that will enhance the partnership. Conley’s and Liu’s
capital account balances are $55,000 each. The partners have agreed to share income or loss
equally. Prepare the general journal entry to record the admission of Lepley to the
partnership.
112. Armstrong plans to leave the FAP Partnership. The recorded value of her capital account
is $48,000. The remaining partners Floyd and Peters agree to pay Armstrong $40,000 cash
and Armstrong accepts. The partners share income and loss equally. Prepare the general
journal entry to record the withdrawal from the partnership.
113. Armstrong plans to leave the FAP Partnership. The recorded balance in her capital
account is $48,000. The remaining partners, Peters and Floyd, agree to pay Armstrong
$58,000 cash and Armstrong accepts. The partners share income and loss equally. Prepare the
journal entry to record the transaction.
114. Conley and Liu allow Lepley to purchase a 25% interest in their partnership for $50,000
cash. Conley and Liu both have capital balances of $55,000 each, and have agreed to share
income and loss equally. Prepare the journal entry to record the admission of Lepley to the
partnership.