Problem D-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
Serial Problem — SP D
1. The owner 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
Jan. 1
Cash ………………………………………………………………..
80,360
New Partner, Capital …………………………………….
80,360
To admit a new partner at a 1:1 ownership interest
2b.
Jan. 1
Cash ………………………………………………………………..
20,090
New Partner, Capital …………………………………….
20,090
To admit a new partner at a 4:1 ownership interest
($80,360 x 1/4 = $20,090).
3.
Jan. 1
Cash ………………………………………………………………..
20,090
New Partner, Capital …………………………………….
20,090
To admit a new partner at a 4:1 ownership interest.
4.
Total capital before admission of partner …………………….
$ 80,360
Partner investment …………………………..…………………………
20,090
Total capital after admission of partner ……………………….
$100,450
New partner’s equity percentage ($20,090 / $100,450) …..
20%
Reporting in Action — BTN D-1
1. The founders of Apple are Steve Wozniak, Steve Jobs and Ron Wayne.
Each Apple I personal computer kit was single-handedly designed and
2. At least two differences would be immediately apparent between
Apple’s corporate income statement and a partnership income
statement.
3. Specifically, the balance sheet for a partnership would not have the
following accounts as reported in the Apple balance sheet reproduced
in Appendix A:
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Financial Accounting Fundamentals, 5th Edition
716
1. Apple was organized/founded in 1976, and Google was
3. Apple and Google stock are both listed on the NASDAQ Exchange.
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
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
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
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 D-5
1. The account titles given in the equity section of Advanced BioEnergy,
LLC 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.
3. Answers will vary by team. One additional income sharing basis would
be to share income based on time worked in the partnership.
Entrepreneurial Decision — BTN D-7
1. Daniel, Craig, 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 Daniel, Craig, and their partners. Three of these
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. Byung-Chull Lee (also referred to as Lee Byung-Chull)
2. In the beginning, the company focused primarily on trade export,
selling dried Korean fish, vegetables, and fruit to Manchuria and
3. Samsung groups its affiliated companies into five areas:
• Electronics