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Problem 12-4B (50 minutes)
Part 1
a)
Apr. 30
Gibbs, Capital ...........................................................
606,000
Brady, Capital .....................................................
606,000
To record admission of Brady.
b)
Apr. 30
Gibbs, Capital ...........................................................
606,000
Cannon, Capital...................................................
606,000
To record admission of Cannon.
c)
Apr. 30
Gibbs, Capital ...........................................................
606,000
Cash ....................................................................
606,000
To record withdrawal of Gibbs with no bonus.
d)
Apr. 30
Gibbs, Capital ...........................................................
606,000
Cook, Capital* .........................................................
51,200
Chan, Capital** ...................................................
204,800
Cash ....................................................................
350,000
To record Gibbs’s withdrawal and the
bonus to old partners.
* ($606,000 - $350,000) x 1/5
**($606,000- $350,000) x 4/5
e)
Apr. 30
Gibbs, Capital ...........................................................
606,000
Accum. Deprec.—Manufacturing Equipment ........
336,000
Cook, Capital*.....................................................
40,800
Chan, Capital** ...................................................
163,200
Manufacturing Equipment ................................
538,000
Cash ....................................................................
200,000
To record withdrawal of Gibbs with
bonus to old partners.
* [$606,000 - ($538,000 - $336,000 + $200,000)] x 1/5
**[$606,000 - ($538,000 - $336,000 + $200,000)] x 4/5
Problem 12-4B (Concluded)
Part 2
a)
Apr. 30
Cash ..........................................................................
300,000
Chip, Capital*......................................................
300,000
To record admission of Chip.
* Supporting calculations
$606,000 + $148,000 + $446,000 = $1,200,000
($1,200,000 + $300,000) x 20% = $300,000
Thus, no bonus is received or granted.
b)
Apr. 30
Cash ..........................................................................
196,000
Gibbs, Capital ($83,200* x 5/10) ................................
41,600
Cook, Capital ($83,200* x 1/10) ................................
8,320
Chan, Capital ($83,200* x 4/10) ................................
33,280
Chip, Capital .......................................................
279,200
To record Chip’s admission and bonus.
* Supporting calculations
($1,200,000 + $196,000) x 20% = $279,200
$196,000 - $279,200 = $(83,200)
Thus, the new partner receives a bonus.
c)
Apr. 30
Cash ..........................................................................
426,000
Gibbs, Capital ($100,800* x 5/10) .........................
50,400
Cook, Capital ($100,800* x 1/10) ..........................
10,080
Chan, Capital ($100,800* x 4/10) ..........................
40,320
Chip, Capital ........................................................
325,200
To record admission of Chip and bonus
to old partners.
* Supporting calculations
($1,200,000 + $426,000) x 20% = $325,200
$426,000 - $325,200 = $100,800
Thus, the old partners receive a bonus.
Problem 12-5B (75 minutes)
1.
(a)
Cash ..........................................................................
650,000
Equipment ...........................................................
617,200
Gain on Sale of Equipment ................................
32,800
(b)
Gain on Sale of Equipment ................................
32,800
Lasure, Capital ($32,800 x 2/5) ...........................
13,120
Ramirez, Capital ($32,800 x 1/5) ........................
6,560
Toney, Capital ($32,800 x 2/5) ............................
13,120
(c)
Accounts Payable ....................................................
342,600
Cash ................................................................
342,600
(d)
Lasure, Capital ($300,400 + $13,120) .....................
313,520
Ramirez, Capital ($195,800 + $6,560) .....................
202,360
Toney, Capital ($127,000 + $13,120) .......................
140,120
Cash* ................................................................
656,000
* $348,600 + $650,000 - $342,600
2.
(a)
Cash ..........................................................................
530,000
Loss on Sale of Equipment ................................
87,200
Equipment ...........................................................
617,200
(b)
Lasure, Capital ($87,200 x 2/5) ................................
34,880
Ramirez, Capital ($87,200 x 1/5) .............................
17,440
Toney, Capital ($87,200 x 2/5) ................................
34,880
Loss on Sale of Equipment ................................
87,200
(c)
Accounts Payable ....................................................
342,600
Cash ................................................................
342,600
(d)
Lasure, Capital ($300,400 - $34,880) ......................
265,520
Ramirez, Capital ($195,800 - $17,440) ....................
178,360
Toney, Capital ($127,000 - $34,880) ........................
92,120
Cash* ................................................................
536,000
* $348,600 + $530,000 - $342,600
Problem 12-5B (Concluded)
3.
(a)
Cash ..........................................................................
200,000
Loss on Sale of Equipment ................................
417,200
Equipment ..........................................................
617,200
(b)
Lasure, Capital ($417,200 x 2/5) ..............................
166,880
Ramirez, Capital ($417,200 x 1/5) ...........................
83,440
Toney, Capital ($417,200 x 2/5) ...............................
166,880
Loss on Sale of Equipment ...............................
417,200
Cash ..........................................................................
39,880
Toney, Capital ($127,000 - $166,880) ................
39,880
(c)
Accounts Payable ....................................................
342,600
Cash ................................................................
342,600
(d)
Lasure, Capital ($300,400 - $166,880) ....................
133,520
Ramirez, Capital ($195,800 - $83,440) ....................
112,360
Cash* ................................................................
245,880
* $348,600 + $200,000 + $39,880 - $342,600
4.
(a)
Cash ..........................................................................
150,000
Loss on Sale of Equipment ................................
467,200
Equipment ..........................................................
617,200
(b)
Lasure, Capital ($467,200 x 2/5) ..............................
186,880
Ramirez, Capital ($467,200 x 1/5) ...........................
93,440
Toney, Capital ($467,200 x 2/5) ...............................
186,880
Loss on Sale of Equipment ...............................
467,200
Lasure, Capital ($59,880 x 2/3) ................................
39,920
Ramirez, Capital ($59,880 x 1/3) .............................
19,960
Toney, Capital ($127,000 - $186,880) ................
59,880
(c)
Accounts Payable ....................................................
342,600
Cash ................................................................
342,600
(d)
Lasure, Capital* ........................................................
73,600
Ramirez, Capital** ....................................................
82,400
Cash*** ................................................................
156,000
*$300,400 - $186,880 - $39,920
**$195,800 - $93,440 - $19,960
***$348,600 + $150,000 - $342,600
Serial Problem — SP 12
1. Adria Lopez should consider several factors:
a. If the company continues to earn profits, at a 1:1 ownership, she will
have to share profits equally with her new partner. On the other hand,
would absorb less of the loss.
b. At the 1:1 ownership, her partner will have more of a say in how the
business is run, whereas at the 4:1 level, the partner will have less of
a voice in the business.
2a.
Jan. 1
Cash ..........................................................................
90,148
New Partner, Capital ...........................................
90,148
To admit a new partner at a 1:1 ownership interest
2b.
Jan. 1
Cash ..........................................................................
22,537
New Partner, Capital ...........................................
22,537
To admit a new partner at a 4:1 ownership interest
($90,148 x 1/4 = $22,537).
3.
Jan. 1
Cash ..........................................................................
22,537
New Partner, Capital ...........................................
22,537
To admit a new partner at a 4:1 ownership interest.
4.
Total capital before admission of partner .........................
$ 90,148
Partner investment ..............................................................
22,537
Total capital after admission of partner ............................
$112,685
New partner’s equity percentage ($22,537 / $112,685) .....
20%
Reporting in Action — BTN 12-1
1. The history states that Edgar Hetteen founded Polaris. Polaris was
2. At least two differences would be immediately apparent between
Polaris’s corporate income statement and a partnership income
statement. First, in a general partnership, income flows through to the
partners to be reported on their individual tax returns. Therefore, the
3. Specifically, the balance sheet for a partnership would not have the
following accounts as reported in the Polaris balance sheet reproduced
in Appendix A:
• Income taxes receivable
• Deferred tax assets
We would also expect a separate Capital account to be reported for
each partner in the equity section of the balance sheet.
Comparative Analysis — BTN 12-2
1. Arctic Cat was founded in 1961 and Polaris was founded in 1954.
Ethics Challenge — BTN 12-3
1. Income allocation per original agreement
Mobey
Oak
Chesterfield
Total
Salary allowance ..............
$ 3,000
$ 3,000
$ 3,000
$ 9,000
Per patient charges .........
4,100*
12,300**
24,600***
41,000
Totals ................................
$ 7,100
$15,300
$27,600
$50,000
*(.10 x 41,000)
**(.30 x 41,000)
***(.60 x 41,000)
2. Income allocation per Chesterfield’s proposal
Mobey
Oak
Chesterfield
Total
Per patient charges .........
$ 5,000
(.10 x 50,000)
$15,000
(.30 x 50,000)
$30,000
(.60 x 50,000)
$50,000
3. The ethical concern here is that Chesterfield has proposed a change to
the partnership agreement that appears to be only self-serving. It is true
that Chesterfield is the group’s largest producer and, therefore, is
A potentially fair compromise would be to study the referral patterns of
Mobey and Oak. Through analysis, a dollar value can be assigned to the
Communicating in Practice — BTN 12-4
--- STUDY NOTES ---
ORGANIZATIONS WITH PARTNERSHIP CHARACTERISTICS
I.
Limited Partnerships
II.
Limited Liability Partnerships
III.
S Corporations
IV.
Limited Liability Companies
I. Limited Partnerships
• These organizations are identified in its name with the words "Limited
Partnership," or "Ltd.," or "L.P."
• A limited partnership has two classes of partners, general and limited. At
least one partner must be a general partner who assumes management
duties and unlimited liability for the debts of the partnership. The limited
partners have no personal liability beyond the amounts they invest in the
partnership.
• A limited partnership is managed by the general partner(s). Limited
partners have no active role except as specified in the partnership
agreement.
• A limited partnership agreement often specifies unique procedures for
allocating incomes and losses between general and limited partners.
• The same basic accounting procedures are used for both limited and
general partnerships.
that partner has personal liability for the claim. The remaining partners
who were not responsible for the actions resulting in the claim are not
personally liable for it.
• Most states hold all partners personally liable for other partnership debts.
• Accounting for a limited liability partnership is the same as for a general
partnership.
Communicating in Practice (Concluded)
Continued
III. S Corporations
• Certain corporations with 100 or fewer stockholders can elect to be
treated like a partnership for income tax purposes. These corporations are
called Sub-Chapter S or simply "S" corporations. This distinguishes them
from other corporations, called Sub-Chapter C or simply "C" corporations.
• "S" corporations provide stockholders with the same limited liability
feature as "C" corporations. The advantage to an "S" corporation is it
doesn't pay income taxes. If stockholders work for an "S" corporation,
their salaries are treated as expenses of the corporation.
• The remaining income or loss of the corporation is allocated to
stockholders for inclusion on their personal tax returns. Except for "C"
corporations having to account for income tax expenses and liabilities,
the accounting procedures are the same for both "S" and "C"
corporations.
Company" or an abbreviation such as "LLC" or "LC."
• This form of business has certain features like a corporation and others
like a limited partnership. The owners, who are called members, are
protected with the same limited liability feature in corporations. While
active management role.
• A limited liability company usually has a limited life.
• For income tax purposes, the IRS usually classifies a limited liability
company as a partnership.
Taking It to the Net — BTN 12-5
1. The account titles given in the equity section of America First Tax
Exempt Investors, L.P are:
2. There are 30,122,928 units with a value of $161,389,189 at December 31,
2010.
Teamwork in Action — BTN 12-6
1.
Income (Loss)
Sharing Plan
Calculations
Baker
Warner
Rice
Total
(a)
$450,000/3 ........................................................
$150,000
$150,000
$150,000
$ 450,000
(b)
$450,000 x ($200,000/$1,000,000) .......................
$ 90,000
$450,000 x ($300,000/$1,000,000) .......................
$135,000
$450,000 x ($500,000/$1,000,000) .......................
_______
_______
$225,000
Total allocated ................................
$ 90,000
$135,000
$225,000
$ 450,000
(c)
Net income .......................................................
$ 450,000
Salary allowances ................................
$ 50,000
$ 60,000
$ 70,000
(180,000)
Balance of income ................................
270,000
Equally($270,000/3) ..............................
90,000
90,000
90,000
(270,000)
Balance of Income ................................
$ 0
Total Allocated ................................
$140,000
$150,000
$160,000
(d)
Net Income .............................................
$ 450,000
Interest allowances:
10% x $200,000 ................................
$ 20,000
10% x $300,000 ................................
$ 30,000
10% x $500,000 ................................
$ 50,000
Total interest ..........................................
(100,000)
Balance of income ................................
350,000
Balance allocated equally .....................
116,666
116,667
116,667
(350,000)
Balance of income ................................
_______
_______
_______
$ 0
Shares of partners ................................
$136,666
$146,667
$166,667
Entrepreneurial Decision — BTN 12-7
1. Omar, Nick, and their future partners would be wise to construct an
agreement that includes the following:
a) names (reputations) and contributions
b) rights and duties
2. The partnership form of business organization will have several
advantages for Omar, Nick, and their partners. Three of these include:
3. Several disadvantages exist with the partnership form of organization.
Three of these include: (a) The greatest disadvantage is that each
Global Decision — BTN 12-8
1. The company went public in December 2003.
