Type
Solution Manual
Book Title
Financial Accounting Fundamentals 5th Edition
ISBN 13
978-0078025754

978-0078025754 Appendix D Solution Manual Part 1

March 26, 2020
Appendix D
Accounting for Partnerships
QUESTIONS
1. Under the circumstances described, the death, bankruptcy, or legal inability of a
partner to execute a contract ends a partnership. In addition, if a partnership is
2. Mutual agency means that each partner is an agent of the partnership and can
commit it to contracts that are within the normal scope of its business.
3. All partners in a general partnership have unlimited liability. A limited partnership
4. Yes, partners can limit the right of a partner. Such an agreement is binding on
5. No, he does not have this right. A partnership is a voluntary association and
partners have the right to select the people with whom they associate as partners.
8. Unlimited liability means that the creditors of a partnership have the right to require
each partner to be personally responsible for all debts of the partnership.
9. George's claim is not valid unless the previously agreed upon method of sharing net
10. No. Kay is still liable to her former partners for her share of the losses.
11. At all times in the accounting history of a partnership (or any organization), assets
must equal liabilities plus equity. When the assets are converted to cash, any gains
12. The remaining partners should share the decline in their equities in accordance with
QUICK STUDIES
Quick Study D-1 (10 minutes)
a. The partnership will need to pay because it is a merchandising firm.
That is, if the vendor knows nothing to the contrary, the vendor can
Quick Study D-2 (10 minutes)
Quick Study D-3 (15 minutes)
Stolton
Bright
Total
Net income .............................................
52,000
Salary allowances
Quick Study D-4 (10 minutes)
Quick Study D-5 (10 minutes)
Quick Study D-6 (10 minutes)
Choi, Capital ..............................................................................
10,000
Quick Study D-7 (30 minutes)
1.
Field
Brown
Snow
Total
Initial investments ..............
$131,250
$165,000
$153,750
$450,000
2. a)
May 31
Cash ..........................................................................
3,750
Field, Capital .......................................................
3,750
3. a)
May 31
Brown, Capital ..........................................................
1,875
Snow, Capital ............................................................
1,875
Field, Capital .......................................................
3,750
Quick Study D-8 (15 minutes)
Total partnership return on equity = Net Income/Average equity
= $24,990 / ($150,000 + $200,000)/2
EXERCISES
Exercise D-1 (15 minutes)
Characteristic
General Partnerships
1.
Life
Limited
Exercise D-2 (20 minutes)
a. Recommended Organization: Sharif, Henry, and Korb might first
consider organizing their business as a general partnership. However, a
problem for these new graduates is that they do not have funds and with
b. Recommended Organization: The two doctors should form a
partnership. A general partnership will have the disadvantage of
c. Recommended Organization: Munson should consider setting up a
limited partnership. Given his real estate expertise he can manage the
Exercise D-3 (25 minutes)
1.
Jan. 1
Cash ..........................................................................
17,500
Equipment ................................................................
82,500
2.
Jan. 1
Cash ..........................................................................
31,250
Exercise D-4 (30 minutes)
Kramer
Knox
Total
Plan (1)
$160,000 x 1/2 ................................
$80,000
$80,000
$160,000
Plan (2)
($60,000/$140,000) x $160,000 .....................
$68,571
$ 68,571
Exercise D-5 (35 minutes)
Kramer
Knox
Total
1.
Net income ....................................................
$ 98,800
Salary allowances ................................
$50,000
$ 40,000
90,000
Interest allowances
2.
Net income ....................................................
$ (16,800)
Salary allowances ................................
$50,000
$ 40,000
90,000
Interest allowances
Exercise D-6 (25 minutes)
1a. 2015
Mar. 1
Cash ..........................................................................
82,500
Land ..........................................................................
60,000
Building ....................................................................
100,000
Eckert, Capital ....................................................
58,250
Kelley, Capital .....................................................
31,750
To close Income Summary account.*
2.
Capital account balances
Eckert
Kelley
Initial investment ................................
$ 82,500
$ 67,500
Withdrawals ........................................
(34,000)
(20,000)
Share of income* ................................
58,250
31,750
Balance of income ................................
_______
_______
$ 0
Shares of the partners ................................
$58,250
$31,750
Exercise D-7 (10 minutes)
Exercise D-8 (25 minutes)
1.
Nov. 1
Cash ...........................................................................
90,000
2.
Nov. 1
Cash ..........................................................................
120,000
Madison, Capital .................................................
94,500
Main, Capital .......................................................
20,400
3.
Nov. 1
Cash ..........................................................................
80,000
Main, Capital .............................................................
6,800
Frist, Capital .............................................................
1,700
Exercise D-9 (15 minutes)
1.
Jan. 31
Tulip, Capital .............................................................
60,000
2.
Jan. 31
Tulip, Capital .............................................................
60,000
Hunter, Capital* ........................................................
12,500
3.
Jan. 31
Tulip, Capital .............................................................
60,000
Hunter, Capital* ..................................................
18,750
Exercise D-10 (30 minutes)
a. Loss from selling assets
Total book value of assets .............................................
$126,000
1) $28,000 = $78,000 - Cash from asset sale
(This implies $50,000 cash from asset sale)
2) Loss on sale of assets = Book value of assets - Cash received
= $126,000 - $50,000 = $76,000
b. Loss allocation
Turner
Roth
Lowe
Total
Exercise D-11 (30 minutes)
a. Loss from selling assets
Total book value of assets .............................................
$126,000
Total liabilities before liquidation ................................
$78,000
Cash paid by each partner
$(6,400)
$(21,600)
$ 0
$(28,000)
c. Deficiency, if any, to be covered
As a limited partner, Lowe has no personal liability for the $28,000
liability. Therefore, Turner and Roth must share the loss reflected in
Exercise D-12 (20 minutes)
Rugged Sports Enterprises LP:

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