171. The capital accounts of Hope and Indiana have balances of $115,000 and $95,000, respectively. Clint and
Casey are to be admitted to the partnership. Clint buys one-fifth of Hope’s interest for $30,000 and one-fourth
of Indiana’s interest for $20,000. Casey contributes $45,000 cash to the partnership, for which he is to receive
an ownership equity of $45,000.
Required:
(1) Journalize the entries to record the admission of (a) Clint and (b) Casey.
(2) What are the capital balances of each partner after the admission of the new partners?
172. Holly and Luke formed a partnership, investing $240,000 and $80,000, respectively. Determine their
participation in the year’s net income of $200,000 under each of the following independent assumptions:
(a)
No agreement concerning division of net income;
(b)
Divided in the ratio of original capital investment;
(c)
Interest at the rate of 15% allowed on original investments and the remainder divided in the ratio of 2:3;
(d)
Salary allowances of $50,000 and $70,000, respectively, and the balance divided equally;
(e)
Allowance of interest at the rate of 15% on original investments, salary allowances of $50,000 and $70,000, respectively, and the
remainder divided equally.
173. Holly and Luke formed a partnership, investing $240,000 and $80,000, respectively. Determine their
participation in the year’s net income of $380,000 under each of the following independent assumptions:
(a)
No agreement concerning division of net income;
(b)
Divided in the ratio of original capital investment;
(c)
Interest at the rate of 15% allowed on original investments and the remainder divided in the ratio of 2:3;
(d)
Salary allowances of $50,000 and $70,000, respectively, and the balance divided equally;
(e)
Allowance of interest at the rate of 15% on original investments, salary allowances of $50,000 and $70,000, respectively, and the
remainder divided equally.
Holly
Luke
Total
$190,000
$190,000
$380,000
$285,000
$95,000
$380,000
$50,000 + $130,000 =
$180,000
$70,000 + $130,000 = $200,000
$120,000 + $260,000 = $380,000
$36,000 + $50,000 +
$106,000 = $192,000
$12,000 + $70,000 + $106,000 =
$188,000
$48,000 + $120,000 + $212,000 =
$380,000
Holly
Luke
Total
$100,000
$100,000
$200,000
$150,000
$50,000
$200,000
e. Interest allowance + Salary allowance +
Remaining income (1:1) = Net Income
$36,000 + $50,000 +
$16,000 = $102,000
$12,000 + $70,000 + $16,000 =
$98,000
$48,000 + $120,000 + $32,000 =
$200,000
174. Benson contributed land, inventory, and $22,000 cash to a partnership. The land had a book value of
$65,000 and a market value of $111,000. The inventory had a book value of $60,000 and a market value of
$58,000. The partnership also assumed a $52,000 note payable owned by Benson that was used originally to
purchase the land.
Required:
Provide the journal entry for Benson’s contribution to the partnership.
175. Prior to liquidating their partnership, Porter and Robert had capital accounts of $160,000 and $100,000
respectively. Prior to liquidation, the partnership had no cash assets other than what was realized from the sale
of the partnership assets. These partnership assets were sold for $250,000. The partnership had $10,000 of
liabilities. Porter and Robert share income and losses equally.
Required:
Determine the amount received by Porter as a final distribution from liquidation of the partnership.
176. Prior to liquidating their partnership, Samuel and Brian had capital accounts of $60,000 and $240,000,
respectively. The partnership assets were sold for $120,000. The partnership had no liabilities. Samuel and
Brian share income and losses equally.
Required:
a. Determine the amount of Samuel’s deficiency.
b. Determine the amount distributed to Brian, assuming Samuel is unable to satisfy the deficiency.
177. Easy Sailing, LLC provides repair services for commercially-owned boats and yachts. The firm has 5
members in the LLC, which did not change between 2011 and 2012. During 2012, the business expanded into
three new regions of the country. The following revenue and employee information is provided:
2011
2012
Revenues (in thousands)
$50,625
$57,750
Number of employees
125
175
Required:
a. For 2011 and 2012, determine the revenue per employee (excluding members).
b. Interpret the trend between the two years.
Revenue per employee, 2012: $57,750,000/175 = $330,000
178. Gleason invested $90,000 in the James and Kirk partnership for ownership equity of $90,000. Prior to the
investment land was revalued to a market value of $425,000 from a book value of $200,000. James and Kirk
share net income in a 1:2 ratio.
a. Provide the journal entry for the revaluation of land.
b. Provide the journal entry to admit Gleason.
179. Top Notch, LLC provides repair services for oil rigs. The firm has 5 members in the LLC, which did not
change between 2011 and 2012. During 2012, the business expanded into three new regions of the country. The
following revenue and employee information is provided:
2011
2012
Revenues (in thousands)
$60,525
$58,500
Number of employees
120
160
Required:
a. For 2011 and 2012, determine the revenue per employee (excluding members).
b. Interpret the trend between the two years.
Revenue per employee, 2011: $60,525,000/120 = $504,375
Revenue per employee, 2012: $58,500,000/160 = $365,625
Land
225,000
Cash
90,000
180. Match each statement to the item listed below.
statement of
2. Place where changes in partner capital accounts for a
3. A step during liquidation when partnership assets are
4. Where the share of loss on realization is greater than
5. Each partner may act on behalf of the entire
partnership so that the liabilities created by one partner
6. An association of two or more persons to own and
7. Used to divide the excess of allowances over loss
income sharing
181. Match the term with the appropriate definition.
1. Without an agreement, the law will stipulate this
2. When a partnership cannot pay its debts with
business assets, the partners must use personal assets
6. Every partner can bind the business to a contract
within the scope of the partnership’s regular business
7. A voluntary association of two or more persons
distribution of
remaining cash to
8. The process of going out of business by selling the
182. Gentry, sole proprietor of a hardware business, decides to form a partnership with Noel. Gentry’s
accounts are as follows:
Book Value
Market
Value
Cash
$ 25,000
$ 25,000
Accounts Receivable (net)
52,000
45,000
Inventory
112,000
125,000
Land
40,000
100,000
Building (net)
300,000
340,000
Accounts Payable
25,000
25,000
Mortgage Payable
145,000
145,000
Noel agrees to contribute $80,000 for a 20% interest. Journalize the entries to record (a) Gentry’s investment and (b) Noel’s investment.
(a)
Cash
25,000
Accounts Receivable
45,000
Inventory
125,000
Land
100,000
Building
340,000
Accounts Payable
25,000
Mortgage Payable
145,000
Gentry, Capital
465,000
(b)
Cash
80,000
Gentry, Capital
29,000
Noel, Capital
109,000
183. Jeff Layton, sole proprietor of a hardware business, decides to form a partnership with Nicholas
Fell. Jeff’s accounts are as follows:
Book Value
Market
Value
Cash
$ 30,000
$ 30,000
Accounts Receivable (net)
55,000
45,000
Inventory
112,000
135,000
Land
40,000
100,000
Building (net)
500,000
540,000
Accounts Payable
25,000
25,000
Mortgage Payable
125,000
125,000
Nicholas agrees to contribute $120,000 for a 20% interest. Journalize the entries to record (a) Jeff’s investment and (b) Nicholas’ investment.
(a)
Cash
30,000
Accounts Receivable
45,000
Inventory
135,000
Land
100,000
Building
540,000
Accounts Payable
25,000
Mortgage Payable
125,000
Jeff Layton, Capital
700,000
(b)
Cash
120,000
Jeff Layton, Capital
44,000
Nicholas Fell, Capital
164,000
184. Sharp and Townson had capital balances of $60,000 and $90,000 respectively at the beginning of the
current fiscal year. The articles of partnership provide for salary allowances of $25,000 and $30,000
respectively, an allowance of interest at 12% on the capital balances at the beginning of the year, with the
remaining net income divided equally. Net income for the current year was $110,000.
(a)
Present the income division section of the income statement for the current year.
(b)
Assuming that the net income had been $55,000 instead of $110,000, present the income division section of the income
statement for the current year.
(a)
Net income
$110,000
Division of net income:
Salary allowance
$25,000
$30,000
$ 55,000
Interest allowance
7,200
10,800
18,000
Remaining income
18,500
18,500
37,000
(b)
Net income
$55,000
Division of net income:
Salary allowance
$25,000
$30,000
$55,000
Interest allowance
7,200
10,800
18,000
Net income
$23,200
$31,800
$55,000
185. Sharp and Townson had capital balances of $60,000 and $120,000 respectively on January 1 of the current
year. On May 8, Sharp invested an additional $10,000 in the partnership. During the year, Sharp and Townson
withdrew $25,000 and $45,000 respectively. After closing all expense and revenue accounts at the end of the
year, Income Summary has a credit balance of $90,000, that Sharp and Townson have agreed to split on a 2:1
basis, respectively.
(a)
Journalize the entries to close the income summary account and the drawing accounts.
(b)
Prepare the statement of owner’s equity for the current year.
Income Summary
90,000
Townson, Capital
30,000
Sharp, Capital
25,000
Sharp, Drawing
25,000
Townson, Drawing
45,000
Sharp
Townson
Total
Capital, January 1
$ 60,000
$120,000
$180,000
Additional investment during the year
10,000
10,000
$ 70,000
$120,000
$190,000
$130,000
$150,000
$280,000
Capital, December 31
$105,000
$105,000
$210,000
186. .Daja and Whitnee had capital balances of $140,000 and $160,000 respectively at the beginning of the
current fiscal year. The articles of partnership provide for salary allowances of $25,000 and $35,000
respectively, an allowance of interest at 12% on the capital balances at the beginning of the year, with the
remaining net income divided equally. Net income for the current year was $120,000.
(a)
Present the income division section of the income statement for the current year.
(b)
Assuming that the net income had been $50,000 instead of $120,000, present the income division section of the income
statement for the current year.
Net income
$120,000
Daja
Whitnee
Total
Salary allowance
$25,000
$35,000
$ 60,000
Interest allowance
16,800
19,200
36,000
Remaining income
12,000
12,000
24,000
(b)
Net income
$50,000
Division of net income:
Interest allowance
16,800
19,200
36,000
Total
$41,800
$54,200
$96,000
Net income
$18,800
$31,200
$50,000
187. Jackson and Campbell have capital balances of $100,000 and $300,000 respectively. Jackson devotes full
time and Campbell one-half time to the business. Determine the division of $150,000 of net income under each
of the following assumptions:
(a)
No agreement as to division of net income.
(b)
In ratio of capital balances.
(c)
In ratio of time devoted to business.
188. Jackson and Campbell have capital balances of $100,000 and $300,000 respectively. Jackson devotes full
time and Campbell one-half time to the business. Determine the division of $120,000 of net income under each
of the following assumptions:
(a)
No agreement as to division of net income.
(b)
In ratio of capital balances.
(c)
In ratio of time devoted to business.
(d)
Interest of 10% on capital balances and remainder equally.
(e)
Interest of 10% on capital balances, salaries of $40,000 to Jackson and $20,000 to Campbell, and the remainder equally.
Jackson
Campbell
Computations
(a)
$60,000
$60,000
Jackson: 50% ´ $120,000
Campbell: 50% ´ $120,000
(b)
$30,000
$90,000
Jackson: 1/4 ´ $120,000
Campbell: 3/4 ´ $120,000
(c)
$80,000
$40,000
Jackson: 2/3 ´ $120,000
Campbell: 1/3 ´ $120,000
(d)
$50,000
$70,000
Jackson: [(10% ´ $100,000) + (1/2 ´ $80,000)]
Campbell: [(10% ´ $300,000) +(1/2 ´ $80,000)]
(e)
$60,000
$60,000
Jackson: [(10% ´ $100,000) + $40,000 + (1/2 ´ $(20,000)]
Campbell: [(10% ´ $300,000) + $20,000 + (1/2 ´ $(20,000)]
Jackson
Campbell
Computations
(a)
$75,000
$75,000
Jackson: 50% ´ $150,000
Campbell: 50% ´ $150,000
Campbell: 3/4 ´ $150,000
(c)
$100,000
$50,000
Jackson: 2/3 ´ $150,000
Campbell: 1/3 ´ $150,000
189. Derek and Hailey, partners sharing net income in the ratio of 2:1, admit Ben to the partnership in
accordance with the following agreement:
(1)
Merchandise inventory recorded in the partnership accounts at $62,500 is to be revalued at its current replacement price of $68,500.
(2)
Ben is to invest $48,000 in cash for a 30% interest in the partnership, which has total net assets (assets minus liabilities) of $130,000
after the inventory is revalued.
(3)
The income-sharing ratio of Derek, Hailey, and Ben is to be 2:1:1.
Required:
(a)
Journalize the entries to record the revaluation of merchandise inventory, and the admission of Ben to the partnership.
(b)
A few years later, the capital balances of Derek, Hailey, and Ben were $150,000, $90,000, and $55,000 respectively. At this time,
Kacy is admitted to the partnership by the purchase of one-half of Derek’s interest for $80,000. Journalize the entry to record the
admission of Kacy to the partnership.
190. Kala and Leah, partners in Best Designs, have capital balances of $40,000 and $60,000
respectively. Adam joins the partnership by buying one-half of Kala’s interest for $30,000. In addition,
because of Adam’s outstanding sales skills, the partners agree to increase his interest to 40% if he invests
another $10,000. The income-sharing ratio of Kala, Leah, and Adam is 4:3:1.
(a)
Journalize the entries to record the admission of Adam to the partnership.
(b)
Immediately after Adam’s admission to the partnership, Leah sells one-fourth of her interest to Denton for $35,000. Journalize
the entry to record this transaction.
(a)
Kala, Capital
20,000
Cash
10,000
Kala, Capital
8,000
Adam, Capital
24,000
(b)
Leah, Capital
13,500
(a)
Merchandise Inventory
6,000
Derek, Capital
4,000
Cash
48,000
Derek, Capital
6,000
Ben, Capital
39,000
(b)
Derek, Capital
75,000
191. Immediately prior to the process of liquidation, partners Micco, Niccum, and Orwell have capital balances
of $70,000, $20,000, and $30,000 respectively. There is a cash balance of $10,000, noncash assets total
$160,000, and liabilities total $50,000. The partners share net income and losses in the ratio of 2:2:1.
Journalize the entries to record the liquidation outlined below, using Assets as the account title for the noncash
assets and Liabilities as the account title for all creditors’ claims.
(a)
Sold the noncash assets for $80,000 in cash.
(b)
Divided the loss on realization.
(c)
Paid the liabilities.
(d)
Received cash from the partner with the deficiency.
(e)
Distributed the cash to the partners.
(a)
Cash
80,000
Loss on Realization
80,000
Assets
160,000
(b)
Micco, Capital
32,000
Niccum, Capital
32,000
Orwell, Capital
16,000
Loss on Realization
80,000
(c)
Liabilities
50,000
Cash
50,000
(d)
Cash
12,000
Niccum, Capital
12,000
(e)
Micco, Capital
38,000
Orwell, Capital
14,000
Cash
52,000
192. After discontinuing the ordinary business operations and closing the accounts on May 7, the ledger of the
partnership of Anna, Brian, and Cole indicated the following:
Cash
$ 7,500
Noncash Assets
105,000
Liabilities
$ 27,500
Anna, Capital
45,000
Brian, Capital
15,000
Cole, Capital
25,000
$112,500
$112,500
The partners share net income and losses in the ratio of 3:2:1. Between May 7-30, the noncash assets were sold for $150,000, the liabilities were
paid, and the remaining cash was distributed to the partners.
(a)
Prepare a statement of partnership liquidation.
(b)
Assume the same facts as in (a), except that the noncash assets were sold for $45,000 and any partner with a capital deficiency
pays the amount of the deficiency to the partnership. Prepare a statement of partnership liquidation.
For Period May 7-30
Capital
Noncash
Anna
Brian
Cole
Cash +
Assets =
Liabilities +
(3/6) +
(2/6) +
(1/6)
Payment of liabilities
-27,500
-27,500
Balances after payment
$130,000
$67,500
$30,000
$32,500
Final balances
0
0
0
0
0
0
Anna, Brian, and Cole
For Period May 7-30
Capital
Noncash
Anna
Brian
Cole
Cash +
Assets =
Liabilities +
(3/6) +
(2/6) +
(1/6)
Balances before
realization
$ 7,500
$105,000
$27,500
$45,000
$15,000
$25,000
193. Barker invested $128,000 in the Granger and Monroe partnership for ownership equity of $128,000. Prior
to the investment, equipment was revalued to a market value of $90,000 from a book value of $66,000. Granger
and Monroe share net income in a 2:1 ratio.
Required:
a. Provide the journal entry for the revaluation of equipment.
b. Provide the journal entry to admit Barker.
194. Watson purchased one-half of Dalton’s interest in the Patton and Dalton partnership for $45,000. Prior to
the investment, land was revalued to a market value of $135,000 from a book value of $93,000. Patton and
Dalton share net income equally. Dalton had a capital balance of $35,000 prior to these transactions.
Required:
a. Provide the journal entry for the revaluation of land.
b. Provide the journal entry to admit Watson.
195. Wonder purchased one-half of Darwin’s interest in the Todd and Darwin’s partnership for $50,000. Prior
to the investment, land was revalued to a market value of $175,000 from a book value of $100,000. Todd and
Darwin share net income equally. Darwin had a capital balance of $40,000 prior to these transactions.
Required:
a. Provide the journal entry for the revaluation of land.
b. Provide the journal entry to admit Wonder.
196. Describe the items which should be covered in a partnership agreement.
197. What is a partnership? List three advantages and three disadvantages of the partnership form of business
organization.