PROBLEM 19.2B
PAGE
POST.
REF.
1 2013 1
12 Deborah Simpson, Capital 11760000 12
13 To record investment of cash by Simpson 13
Cash 12660000
Accounts Receivable 900000
Partners’ Equity
Homer Litton, Capital 11760000
Deborah Simpson, Capital 11760000
Total Partners’ Equity 23520000
Total Liabilities and Partners’ Equity 24320000
Analyze: If Simpson had invested 80% of the value of Litton’s Investment, Simpson’s capital
GENERAL JOURNAL
DATE DESCRIPTION DEBIT CREDIT
Balance Sheet
January 1, 2013
Assets
The Artist’s Supply
PROBLEM 19.3B
PAGE
POST.
REF.
1 2013 1
12 Neil Wayne, Drawing 6000000 12
13 To close drawing account 13
14 14
15 31 Howard Johnson, Capital 3850000 15
16 Neil Wayne, Capital 7150000 16
27 27
28 28
29 29
30 30
31 31
GENERAL JOURNAL
DATE DESCRIPTION DEBIT CREDIT
PROBLEM 19.4B
PAGE
POST.
REF.
1 2013 1
12 31 Income Summary 3280000 12
13 Alika Myers, Capital 10 40000 13
14 Cliff Hanson, Capital 2240000 14
15 To record interest allowance of 10% of 15
16 January 1, 2013 capital accounts balances 16
27 27
28 31 Cliff Hanson, Capital 4800000 28
29 Cliff Hanson, Drawing 4800000 29
30 To close drawing account 30
31 31
GENERAL JOURNAL
DATE DESCRIPTION DEBIT CREDIT
PROBLEM 19.4B (continued)
Net Income for Year 19280000
Distribution of Net Income
Capital Balances, Jan. 1, 2013 10400000 22400000 32800000
Net Income 9640000 9640000 19280000
Analyze: The interest allowance is a means of paying for the use of capital. If interest is based on
Downtown Apartments
Income Statement
Statement of Partners’ Equities
Year Ended December 31, 2013
Year Ended December 31, 2013
Alika Myers Cliff Hanson Total
Downtown Apartments
Alika Myers Cliff Hanson Total
PROBLEM 19.5B
PAGE
POST.
REF.
1 2013 1
12 12
13 31 Cash 6600000 13
14 Rosie Hinojosa, Capital 660000014
15 To record investment by Hinojosa 15
16 16
27 31 Cash 6600000 27
28 Rosie Hinojosa, Capital 660000028
29 To record investment by Hinojosa 29
30 30
31 31 Helen Rush, Capital 1925400 31
GENERAL JOURNAL
DATE ACCOUNTS DEBIT CREDIT
PROBLEM 19.5B (continued)
PAGE
POST.
REF.
1 2013 1
12 withdrawal from the partnership 12
13 13
14 31 Quinton Booker, Capital 51 3 7 2 00 14
15 Helen Rush, Capital 642900 15
16 Billy Hatten, Capital 257100 16
27 27
28 28
29 29
30 30
31 31
CREDIT
GENERAL JOURNAL
DATE DESCRIPTION DEBIT
14
PROBLEM 19.6B
PAGE
POST.
REF.
1 2013 1
12 2 Cash 24000000 12
13 Stanley Carpenter, Capital 24000000 13
14 Record investment of cash by Carpenter 14
15 for one-fourth interest in partnership 15
16 16
27 27
28 2 Haywood Nelson, Capital 2200000 28
29 Fred Kenamond, Capital 18 00000 29
30 Stanley Carpenter, Capital 40 00000 30
31 Record allocation of bonus paid by original 31
CREDIT
GENERAL JOURNAL
DATE ACCOUNTS DEBIT
CRITICAL THINKING PROBLEM 19.1
There is no one correct answer to the division of income and losses for this partnership. Students’
answers will vary from the simple to the complex. Some students will opt for the easy solution and
divide income and losses equally, while others will be more creative and allocate income and
losses over a salary allowance and/or interest allowance with the remainder divided according to
a set ratio.
You might want to divide the students into teams. Each team will determine how it wants to divide
income and losses and then the team solutions can be presented to the class for comparison and
discussion.
One possible provision for division of income and losses for the BK Motorcycle Repair Shop
partnership follows:
Beehler Keller Total
Salary Allowance $80,000 $40,000 $120,000
DISTRIBUTION OF NET INCOME
CRITICAL THINKING PROBLEM 19.2
PAGE
POST.
REF.
1 2013 1
2 Jan. 1 Accounts Receivable 128 0 0 0 00 2
3 Merchandise Inventory 175 0 0 0 00 3
4 Furniture and Equipment 35 0 0 0 00 4
11 Herschel Anderson, Capital 199 7 3 3 00 11
12 To record investment by Anderson 12
13 13
14 various Ted Coe, Drawing 108 0 0 0 00 14
25 To record 10% interest allowance on 25
26 beginning investment 26
27 27
28 Income Summary 196 0 6 7 00 28
29 Ted Coe, Capital 98 0 3 3 50 29
CREDIT
GENERAL JOURNAL
DATE ACCOUNTS DEBIT
CRITICAL THINKING PROBLEM 19.2 (continued)
PAGE
POST.
REF.
1 2014 1
2 Jan. 1 Cash 12000000 2
3 Mary Wells, Capital 12000000 3
4 To record investment of Wells 4
CREDIT
GENERAL JOURNAL
DATE DESCRIPTION DEBIT
CRITICAL THINKING PROBLEM 19.2 (continued)
ACCOUNT Ted Coe, Capital ACCOUNT NO.
2013
Jan. 1 Beginning balance 29960000 29960000
Dec. 31 Salary allowances 10800000 40760000
ACCOUNT Herschel Anderson, Capital ACCOUNT NO.
2013
Jan. 1 Beginning balance 19973300 19973300
Dec. 31 Salary allowances 9600000 29573300
CREDITDEBIT
CREDIT
CREDIT
BALANCE
DEBIT
DATE DESCRIPTION
POST.
REF. DEBIT CREDIT
DEBIT
311
BALANCE
POST.
REF.
GENERAL LEDGER
301
DATE DESCRIPTION
CRITICAL THINKING PROBLEM 19.2 (continued)
Net Income for Year 45000000
Allocation of net income
Salary Allowance 10800000 9600000 20400000
Capital Balances, January 1, 2013 −0−−0−−0−
Investment During Year 29960000 19973300 49933300
Net Income for Year 23599350 21400650 45000000
Anderson-Coe Professional Management Consultants
Statement of Partners’ Equities
Year Ended December 31, 2013
Coe Capital Anderson Capital Total Capital
Coe Anderson Total
SOLUTIONS TO BUSINESS CONNECTIONS
Managerial Focus:
1. Unlimited liability for the debts of the firm; potential for disagreements between partners; mutual
agency.
3. General partners are personally liable for the debts of the partnership. Limited partners’ liability is
limited to their partnership equity.
5. A draw is the withdrawal of cash in anticipation of income. A salary allowance is a factor in the
6. Generally, assets and liabilities must be revalued and the withdrawing partner is entitled to the
account balance after revaluation.
Ethical Dilemma:
Since Donald does not have the business expertise to run the business, Donald’s only option is to
Financial Statement Analysis:
1. 1.20%
Team Work:
Though the answers will vary, the important concept is that there should be a value placed on each
SOLUTIONS TO BUSINESS CONNECTIONS (continued)
Internet Connection:
Advantages of a Partnership: 1) Partnerships are relatively easy to establish; however time should be
invested in developing the partnership agreement, 2) With more than one owner, the ability to raise
funds may be increased, 3) The profits from the business flow directly through to the partners’
Part A True-False
1. TRUE
3. TRUE
5. FALSE
7. FALSE
9. TRUE
11. TRUE
13. FALSE
15. FALSE
17. FALSE
18. FALSE
Part B Matching
1. f
3. e
5. c
7. h
9. g
11. a
Part C Completion
2. limited
4. continuity
6. market values
8. partner’s drawing
10. incoming
SOLUTIONS TO PRACTICE TEST