Problem D-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.
Financial & Managerial Accounting, 5th Edition
1478
Problem D-5B (75 minutes)
Note: All entries in this problem are dated Jan. 18.
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 D-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
Financial & Managerial Accounting, 5th Edition
1480
Serial Problem — SP D
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,
at a 4:1 ownership, she will only have to share one-fifth of the profits
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 D-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
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
Comparative Analysis — BTN D-2
1. Arctic Cat was founded in 1961 and Polaris was founded in 1954.
Ethics Challenge — BTN D-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
entitled to the largest income. However, Chesterfield’s proposal does
Communicating in Practice — BTN D-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.
partner. When a partner provides service resulting in a malpractice claim,
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.
IV. Limited Liability Companies
partnership, the members of a limited liability company can assume an
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.
Financial & Managerial Accounting, 5th Edition
1486
Taking It to the Net — BTN D-5
1. The account titles given in the equity section of America First Tax
Exempt Investors, L.P are:
Teamwork in Action — BTN D-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
2. Team members share solutions.
Financial & Managerial Accounting, 5th Edition
1488
Entrepreneurial Decision — BTN D-7
1. Omar, Nick, and their future partners would be wise to construct an
agreement that includes the following:
a) names (reputations) and contributions
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 D-8
1. The company went public in December 2003.
KTM Financial Services GmbH and Kiska GmbH.
