50. Richardson and George have been partners in the medical supply business since July 18, 20X3. Since the
formation of the partnership, profits and losses have been shared in the ratio of 55:45, respectively. Capital
balances on December 31, 20X7, were $159,000 for Richardson and $106,000 for George. They have agreed to
admit Keller as a partner on January 1, 20X8. Keller will receive a 30% interest in partnership capital, and
future profits and losses will be allocated equally among the partners.
Required:
Prepare journal entries in the partnership books to record Keller’s admission in each of the following situations:
a.
Keller deals directly with Richardson and agrees to exchange land with a book value of $60,000 and a fair market value of $87,000 for
50% of Richardson’s interest in capital. Record Keller’s contribution under the two alternative methods. What assumption is made under
each alternative?
b.
Keller contributes $130,000 cash and a 1-year note with a value of $20,000 to the partnership entity. Record journal entries under the
bonus and goodwill methods.
c.
Using the bonus method, assume that (1) Keller contributes $84,000 and an established clientele, or (2) Keller‘s contribution of $84,000 is
sufficient because existing partnership assets are overvalued.
d.
Keller invests $84,000 in the partnership entity. Use the goodwill method and assume that net assets should not be written down.
51. Rogers, Davis, and Smukalla have capital balances of $50,000, $26,100, and $10,900, respectively. The
partners share profits/losses equally.
Required:
Calculate Rogers’ new capital balance resulting from each of the following independent situations:
Situation 1:
Smukalla sells his interest in the partnership to Rogers for $25,000.
Situation 2:
Meyers purchases a one-fourth interest from the partnership for $35,000. The bonus method is used to account for the
incoming partner.
Situation 3:
The same as Situation 2 except that the goodwill method is used to account for the incoming partner.
Situation 4:
Davis sells her interest to the partnership for $30,000. The total amount of suggested goodwill is to be recorded.
Rogers’ new capital balance is $60,900 ($50,000 $10,900). Because the transaction involves individual partners and
Meyers’ interest of $4,500 ($35,000 – $30,500) is allocated equally among the original partners. (Rogers receives 4,500 x
1/3 or 1,500)
interest in the goodwill as the partners share profits equally.
52. Luc, Denis, and Rollande have capital balances of $30,000, $70,000, and $15,000, respectively. The
partners share profits/losses 2:6:2. All assets’ book values equal market except as noted. The partnership
agreement states the bonus method is to be used to account for partner sale of interest to the partnership.
Required:
Calculate Luc’s new capital balance resulting from each of the following independent situations:
Situation 1:
Rollande sells his interest to the partnership for $25,000. Bonus method is used.
Situation 2:
Rollande sells his interest to Luc for $25,000.
Situation 3:
Martel purchases a 20% interest from the partnership for $35,000. The bonus method is used to account for the incoming
partner.
Situation 4:
The same as Situation 3 except that the goodwill method is used to account for the incoming partner.
remaining partners based on their remaining profit and loss ratios. (2/8 to Luc, 6/8 to Denis so Luc receives 10,000 x 2/8
Situation 2:
Luc’s new capital balance is $45,000 ($30,000 + $15,000). Because the transaction involves individual partners and not
the partnership, Rollande’s balance is merely transferred to Luc’s.
53. Long-term partners, Pop, Ping, and Pam have capital balances of $60,000, $45,000 and $30,000,
respectively. They share in profits and losses 50%-to-30%-to-20%, respectively. All assets are valued fairly.
Pam decides to retire from the partnership. Calculate the remaining partners’ capital balances after the Pam
withdrawal under the following situations:
a.
Pam sells the interest to Ping for $25,000.
b.
Pam sells the interest to the partnership for $25,000; bonus method is used
c.
Pam sells the interest to the partnership for $40,000; goodwill attributable only to the exiting partner is recorded
a.
Capital Balances:
Total
Pop
Ping
Pam
Before retirement:
$135,000
$60,000
$45,000
$ 30,000
Pam Withdraws:
30,000
(30,000)
After Retirement:
$135,000
$60,000
$75,000
$ 0
b.
Capital Balances:
Total
Pop
Ping
Pam
Before retirement:
$135,000
$60,000
$45,000
$30,000
Pam Withdraws:
(25,000)
3,125
1,875
(30,000)
After Retirement:
$110,000
$63,125
$46,875
$ 0
Price paid to Pam = $25,000
Pam Capital = $30,000
respectively.
c.
Capital Balances:
Total
Pop
Ping
Pam
Before retirement:
$135,000
$60,000
$45,000
$30,000
Pam’s share GW:
10,000
10,000
Pam Withdraws:
(40,000)
(40,000)
After Retirement:
$105,000
$60,000
$45,000
$ 0
Price paid to Pam = $40,000
Pam Capital = $30,000
Pam’s share of Goodwill = $10,000
54. Oak, Pine, and Maple are partners with present capital balances of $42,000, $39,000, and $90,000,
respectively. The partners share profits and losses according to the following percentages: 20% for Oak, 20%
for Pine, and 60% for Maple. The existing assets of the original partnership have market values equal to book
values except for the following:
Accounts Receivable:
overvalued by $10,000
Land:
undervalued by $30,000
Pine has agreed to sell her interest to the partnership for $45,000.
Required:
Calculate the capital balances for each individual in the new partnership, assuming use of the bonus and goodwill methods. The goodwill method
should recognize the goodwill traceable to all partners.
Bonus method:
Total
Oak
Pine
Maple
Original capital balance
$171,000
$42,000
$39,000
$90,000
Asset revaluation
(10,000)
(2,000)
(2,000)
(6,000)
Distribution
to withdrawing partner:
Bonus*
( 8,000)
(2,000)
(6,000)
Capital balance*
(37,000)
(37,000)
Total
$116,000
$38,000
$ 0
$78,000
* Price Paid to Pine = $45,000
Pine’s Adjusted Capital = $37,000
(after asset revaluation)
Bonus = $(8,000)
Goodwill method:
Total
Oak
Pine
Maple
Original capital balance
$171,000
$42,000
$39,000
$ 90,000
Asset revaluation
(10,000)
(2,000)
(2,000)
(6,000)
Asset revaluation
30,000
6,000
6,000
18,000
Distribution
to withdrawing partner:
Goodwill*
10,000
2,000
2,000
6,000
Capital balance*
(45,000)
(45,000)
Total
$156,000
$48,000
$ 0
$108,000
* Price Paid to Pine = $45,000
Pine’s Adjusted Capital = $43,000
(after asset revaluation)
55. The partnership of Alt, Brown, and Carns has total assets and liabilities of $30,000 and $25,000,
respectively. Information relating to the partners is as follows:
Alt
Brown
Carns
Total personal assets
$90,000
$20,000
$12,000
Total personal liabilities
60,000
15,000
15,000
Partnership capital balance
(deficit)
10,000
(2,000)
(3,000)
Required:
a.
Assuming that federal bankruptcy laws are applicable, indicate how the partners’ personal assets would be distributed.
b.
Assume that the partnership had a deficit of $10,000, allocated among Alt, Brown, and Carns as follows: $2,000 surplus, $7,000 deficit,
and $5,000 deficit, respectively. Indicate how the deficit would be satisfied when bankruptcy laws are applicable.
a.
Distribution of assets per bankruptcy law:
Alt
Brown
Carns*
Personal assets
$90,000
$20,000
$12,000
Personal liabilities
(60,000)
(15,000)
(10,000)
Partnership debts
0
(2,000)
(2,000)
Balance
$30,000
$ 3,000
$ 0
*The personal assets are allocated as follows:
debt:
b.
Partnership deficit
$(10,000)
Capital contributions by:
Carns
Alt & Brown
10,000
Remaining deficit
$ 0
a.
$7,000 from Alt only
b.
$2,000 from Alt + $5,000 from Brown ($20,000 – $15,000) (preferred)
$5,000 (for example, $4,000 from Alt and $3,000 from Brown)
56. Merz, Dechter, and Flowers are partners in a partnership and share profits and losses 40%, 40%, and 20%,
respectively. The partners have agreed to liquidate the partnership and anticipate that liquidation expenses will
total $14,000. Prior to the liquidation, the partnership balance sheet reflects the following book values:
Cash
$ 25,000
Noncash assets
200,000
Note payable to Dechter
12,000
Other liabilities
165,000
Capital, Merz
40,000
Capital Dechter
18,000
Capital deficit, Flowers
(10,000)
Required:
Assuming that the actual liquidation expenses are $20,000 and that noncash assets are sold for $160,000, determine how the assets will be distributed.
Flowers has net personal assets of $10,000.
Noncash
Capital and
Loan Balances
Cash
Assets
Liabilities
Merz
Dechter
Flowers
Beginning balances
$ 25,000
$200,000
$165,000
$ 40,000
$30,000*
$(10,000)
Liquidation expense
(20,000)
(8,000)
(8,000)
(4,000)
Sale of non-cash assets
160,000
(200,000)
(16,000)
(16,000)
(8,000)
Payment of liabilities
(165,000)
(165,000)
Contribution by Flowers
10,000
10,000
Allocation of Flower’s deficit
(6,000)
(6,000)
12,000
Distribution to partners
(10,000)
(10,000)
0
0
Ending balances
0
0
0
0
0
0
* 18,000 capital + 12,000 loan
57. The partnership of Able, Bower, and Cramer was liquidated. The partners have shared profits and losses in
the ratio of 2:4:4. Prior to liquidation, their capital balances were the following*:
Able
Bower
Cramer
$10,000
$(5,000)
$(15,000)
* Deficit shown in parentheses
Cash totaled $20,000, with liabilities amounting to $30,000. A review of the individual partners’ personal financial status reveals the following:
Assets
Liabilities
Able
$ 5,000
$20,000
Bower
6,000
4,000
Cramer
30,000
20,000
Required:
Prepare a worksheet to liquidate the partnership.
Cash
Liabilities
Able
Bower
Cramer
Beginning:
$20,000
$(30,000)
$(10,000)
$5,000
$15,000
Payment of liabilities:
(20,000)
20,000
$ 0
$(10,000)
$(10,000)
$5,000
$15,000
Cramer/Bower pay in
From personal worth
to cover
deficit balances:
12,000
(2,000)
(10,000)
$12,000
$(10,000)
$(10,000)
$3,000
$ 5,000
Payment of liabilities:
(10,000)
10,000
$ 2,000
$ 0
$(10,000)
$3,000
$ 5,000
Allocation of
Deficit balances:
8,000
(3,000)
(5,000)
$ 2,000
$ 0
$ (2,000)
$ 0
$ 0
Able paid:
(2,000)
2,000
$ 0
$ 0
$ 0
$ 0
$ 0
58. The ALPHA, BETA, AND DELTA partnership has total assets of $260,000. Capital balances for partners
ALPHA, BETA, and DELTA are $50,000, $30,000, and $50,000, respectively. The profit/loss percentages for
partners ALPHA, BETA, and DELTA are 30%, 40%, and 30%, respectively. Included in the liabilities is a
$9,000 loan payable to ALPHA. The partnership has elected to liquidate over the next several months.
Liquidation expenses are estimated to be $15,000.
Required:
Assuming assets with a book value of $80,000 were sold for $60,000, and that $160,000 cash is available after
the sale, how should the available cash be distributed?
59. On July 1, 20X9, the Crawford Company has the following balance sheet:
Assets
Liabilities and Capital
Cash
$ 17,000
Accounts payable
$ 32,000
Other assets
183,000
Due to Palmer
12,000
Other liabilities
70,000
Palmer, capital
24,000
Lake, capital
62,000
Total assets
$200,000
Total liabilities and
capital
$200,000
As of July 1, 20X9, the partners have personal net worth as follows:
Palmer
Lake
Assets
$52,000
$ 76,000
Liabilities
47,000
102,000
The personal net worth of each partner does not include any amounts due to or from the partnership.
Required:
Assume the other assets are sold for $103,000 after incurring liquidation expenses of $4,000. After liquidation of the partnership, determine how
much is available to Lake’s unsatisfied personal creditors based on the following:
a.
Application of the Uniform Partnership Act
b.
Application of common law
Note that if income distribution procedures are not stated in the partnership agreement, RUPA states that
income is to be distributed equally among partners.
a.
For the worksheet solution, please refer to Answer 14-3.
Offset
Other
Capital Balances
Cash
Assets
Liabilities
Palmer
Lake
Beginning balances
$ 17,000
$183,000
$102,000
$36,000
$62,000
Liquidation expenses
(4,000)
(2,000)
(2,000)
Sale of assets
103,000
(183,000)
(40,000)
(40,000)
Balance
116,000
0
102,000
(6,000)
20,000
Contribution
5,000
5,000
Absorb debit balances
1,000
(1,000)
Ending balances
$121,000
0
$102,000
0
$19,000
a)
The $19,000 of cash in the partnership traceable to Lake.
60. The Nice, Rice, and Dice Partnership has not been successful. The partners have determined they must
liquidate their partnership. The partners have agreed to liquidate the partnership and anticipate that liquidation
expenses will total $1,000. Prior to the liquidation, the partnership balance sheet reflects the following book
values:
Cash
$18,000
Noncash assets
51,000
Note receivable-Nice
3,000
Other liabilities
20,000
Capital, Nice
6,000
Capital, Rice
30,000
Capital, Dice
16,000
Profits and losses are shared 45% to Nice, 35% to Rice, and 20% to Dice. A review of the individual partner’s personal net worth reveals the
following:
Assets
Liabilities
Nice
165,000
162,000
Rice
200,000
110,000
Dice
185,000
90,000
The following transactions occur:
a.
Assets having a book value of $40,000 are sold for $22,000 cash
b.
Liabilities are paid, where possible
c.
Partners contribute from their personal net worth, according to RUPA requirements
Required:
Prepare liquidation schedule and determine how the available assets will be distributed using a schedule of safe payments.
Cash
Noncash
Liabilities
Nice
Rice
Dice
Beginning:
$18,000
$ 51,000
$(20,000)
* $(3,000)
$(30,000)
$(16,000)
Sale of Asset:
22,000
(40,000)
8,100
6,300
3,600
Payment of
liabilities:
(20,000)
20,000
Balance:
$20,000
$ 11,000
$ 0
$ 5,100
$(23,700)
$(12,400)
Nice pays in from
personal worth
to cover
Deficit
Balances:
3,000
** (3,000)
Balance
$23,000
$ 11,000
$ 0
$ 2,100
$(23,700)
$(12,400)
Allocation of
Deficit
Balance:
(2,100)
1,336
764
$23,000
$ 11,000
$ 0
$ 0
$(22,364)
$(11,636)
Schedule of
Safe Payments:
Expected
Liquidation
Expenses
(1,000)
636
364
Max Loss
61. The Tyler, Russell, and Colby partnership is liquidating. The three partners share profits and losses equally.
The following is the post-closing trial balance for the partnership:
Dr.
Cr.
Assets
$177,000
Liabilities (including $15,000 loan from Russell)
$85,000
Tyler, Capital
30,000
Russell, Capital
12,000
Colby, Capital
50,000
Required:
Draft a predistribution plan for the partnership liquidation and provide a schedule of payments.
Balances
Absorbable
Tyler
Russell
Colby
Tyler
Russell
Colby
Profit and loss
percentage
1/3
1/3
1/3
Capital and
Maximum loss
absorbable
$90,000
$81,000
$150,000
Amount to reduce
to next highest
ranked MLA
(60,000)
$90,000
$81,000
$ 90,000
Reduction in
capital
(20,000)
New capital
balance
$30,000
$27,000
$30,000
Amount to reduce
to next highest
ranked MLA
(9,000)
(9,000)
$81,000
$81,000
$ 81,000
Reduction in
capital
(3,000)
(3,000)
New capital
balance
$27,000
$27,000
$27,000
ble to
Amount
Liabilities
Tyler
Russell
Colby
First $70,000
$70,000
Next $20,000
100%
Next $6,000
50%
50%
Additional payments
1/3
1/3
1/3
62. The Revised Uniform Partnership Agreement establishes rules governing the priority in which partnership
assets are distributed to creditors and partners. Subject to any agreement to the contrary, what is the sequence
of events to accomplish the settlement of accounts and distributions to the partners?
Subject to any agreement to the contrary, the following sequence must be followed: