Exercise D-6 (25 minutes)
1a. 2015
Mar. 1
Cash ………………………………………………………………..
82,500
Land ………………………………………………………………..
60,000
Building …………………………………………………………..
100,000
Long–Term Note Payable …………………………....
92,500
Eckert, Capital …………………………………………….
82,500
Kelley, Capital …………………………………………….
67,500
To record initial capital investments.
1b. 2015
Eckert, Withdrawals ……………………………………….…
34,000
Kelley, Withdrawals ………………………………………..…
20,000
Cash ………………………………………………………...…
54,000
To record partners’ withdrawals.
1c. 2015
Eckert, Capital ……………………………………………….…
34,000
Kelley, Capital ………………………………………………..…
20,000
Eckert, Withdrawals ………………………………….…
34,000
Kelley, Withdrawals …………………………………..…
20,000
To close withdrawals accounts.
Income Summary …………………………………………..…
90,000
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
Ending balances ……………………….….
$106,750
$ 79,250
*Supporting calculations
Eckert
Kelley
Total
Net income …………………………………….…………………
$90,000
Salary allowance
Eckert ……………………………………………………….
$25,000
Total salary allowance …………………….…….
25,000
Balance of income …………………………..
65,000
Interest allowances
Eckert (10% on $82,500) ………………..…………
8,250
Kelley (10% on $67,500) …………………………..
$ 6,750
Total interest allowances…………………………..
15,000
Balance of income …………………………..
50,000
Balance allocated equally
Eckert …………………………………………..…………..
25,000
Kelley …………………………………………..…………..
25,000
Total allocated equally …………………….…….
50,000
Balance of income …………………………..
_______
_______
$ 0
Shares of the partners …………………………..
$58,250
$31,750
Exercise D-7 (10 minutes)
Mandy, Capital …………………………..………………..……
100,000
Brittney, Capital …………………………..………………
100,000
To record admission of Brittney.
Exercise D-8 (25 minutes)
1.
Cash ……………………………………………………….…….….
90,000
Madison, Capital ………………………………………….
90,000
To record admission of Madison
[($510,000 + $90,000) x 15%].
2.
Nov. 1
Cash ………………………………………………………………..
120,000
Madison, Capital……………………………………..…..
94,500
Main, Capital …………………………………………..…..
20,400
Frist, Capital …………………………..…………………..
5,100
To record admission of Madison.
Supporting computations
$510,000 + $120,000 = $630,000
$630,000 x 15% = $94,500
$120,000 – $94,500 = $25,500
$25,500 x 80% = $20,400
$25,500 x 20% = $5,100
3.
Nov. 1
Cash ………………………………………………………………..
80,000
Main, Capital ………………………………………………..…..
6,800
Frist, Capital …………………………..………………………..
1,700
Madison, Capital……………………………………..…..
88,500
To record admission of Madison.
Supporting computations
$510,000 + $80,000 = $590,000
$590,000 x 15% = $88,500
$80,000 – $88,500 = $(8,500)
$(8,500) x 80% = $(6,800)
$(8,500) x 20% = $(1,700)
Exercise D-9 (15 minutes)
1.
Jan. 31
Tulip, Capital ………………………………………………..…..
60,000
Cash ……………………………………………………….
60,000
To record retirement of Tulip.
2.
Jan. 31
Tulip, Capital ………………………………………………..…..
60,000
Hunter, Capital* …………………………..……………….…..
12,500
Folgers, Capital** ……………………………………………..
7,500
Cash ……………………………………………………….
80,000
To record retirement of Tulip.
* (5/8 x $20,000)
**(3/8 x $20,000)
3.
Jan. 31
Tulip, Capital ………………………………………………..…..
60,000
Hunter, Capital* …………………………..………….…..
18,750
Folgers, Capital** …………………………..……….…..
11,250
Cash ……………………………………………………….
30,000
To record retirement of Tulip.
* (5/8 x $30,000)
**(3/8 x $30,000)
Exercise D-10 (30 minutes)
a. Loss from selling assets
Total book value of assets …………………………..…….……
$126,000
Total liabilities (before liquidation) …………………….……
$78,000
Total liabilities remaining after paying
proceeds of asset sales to creditors ………………..……
(28,000)
Cash proceeds from sale of assets …………………….……
(50,000)
Loss on sale of assets* ……………………………………..……
$ 76,000
* Alternative computation
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
Capital balances before
loss liquidation
$ 2,500
$ 14,000
$ 31,500
$ 48,000
Allocation of loss
$76,000 x 1/10 …………………..
(7,600)
$76,000 x 4/10 …………………..
(30,400)
$76,000 x 5/10 …………………..
______
_______
(38,000)
(76,000)
Capital balances after loss …..
$(5,100)
$(16,400)
$ (6,500)
$(28,000)
c. Deficiency, if any, to be covered
Exercise D-11 (30 minutes)
a. Loss from selling assets
Total book value of assets …………………………..………….
$126,000
Total liabilities before liquidation …………………………..
$78,000
Total liabilities remaining after paying proceeds
of asset sales to creditors ………………………………….….
(28,000)
Cash proceeds from sale of assets ………………………….
(50,000)
Loss on sale of assets …………………………………………….
$ 76,000
b. Loss and deficit allocation
Turner
Roth
Lowe
Total
Capital balances before loss
$ 2,500
$ 14,000
$ 31,500
$ 48,000
Allocation of loss
$76,000 x 1/10 …………………..
(7,600)
$76,000 x 4/10 …………………..
(30,400)
$76,000 x 5/10 …………………..
______
_______
(38,000)
(76,000)
Capital balances after loss …..
(5,100)
(16,400)
(6,500)
$(28,000)
Allocation of Lowe’s deficit
to Turner and Roth
$6,500 x 1/5 ……………………...
(1,300)
$6,500 x 4/5 ……………………...
______
(5,200)
6,500
_________
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
Lowe’s capital account deficit as shown above.
Exercise D-12 (20 minutes)
Rugged Sports Enterprises LP:
PROBLEM SET A
Problem D-1A (45 minutes)
Preliminary calculations
Plan (a) & Plan (c)
Percentages based on initial investments
Watts = $42,000/$105,000 = 40%
Lyon = $63,000/$105,000 = 60%
Plan (b)
Percentages based on time
Watts = 0.5/1.5 = 33 1/3%
Lyon = 1.0/1.5 = 66 2/3%
Plan (c) & Plan (d)
Salary allowance
Lyon= 12 x $6,000 = $72,000
Plan (d)
Interest allowances
Watts = 10% x $42,000 = $ 4,200
Lyon= 10% x $63,000 = $ 6,300
Problem D-1A (Concluded)
Income (Loss)
Year 2
Sharing Plan
Calculations
Watts
Lyon
(a)
40% x $90,000 income …………………………..
$36,000
60% x $90,000 income …………………………..
$54,000
(b)
33 1/3% x $90,000 income …………………….…….
$30,000
66 2/3% x $90,000 income …………………….…….
$60,000
(c)
Salary allowance …………………………..……..…………..
$72,000
40% x ($90,000 income – $72,000 salary) ….……………
$ 7,200
60% x ($90,000 income – $72,000 salary) ….……………
_______
10,800
Totals …………………………..…………………………..
$ 7,200
$82,800
(d)
Salary allowance …………………………..……..…………..
$72,000
Interest allowances …………………………………………..
$ 4,200
6,300
50% x ($90,000 income – $72,000
salary – $10,500 interest) …………………………..
3,750
3,750
Totals …………………………..…………………………..
$ 7,950
$82,050
Income (Loss)
Year 3
Sharing Plan
Calculations
Watts
Lyon
(a)
40% x $150,000 income …………………………….………
$60,000
60% x $150,000 income …………………………….………
$ 90,000
(b)
33 1/3% x $150,000 income ……………………….….
$50,000
66 2/3% x $150,000 income ……………………….….
$100,000
(c)
Salary allowance …………………………..………….………
$ 72,000
40% x ($150,000 income – $72,000 salary) ….………
$31,200
60% x ($150,000 income – $72,000 salary) ….………
_______
46,800
Totals …………………………..…………………………..
$31,200
$118,800
(d)
Salary allowance …………………………..………….………
$ 72,000
Interest allowances …………………………………..………
$ 4,200
6,300
50% x ($150,000 income – $72,000
salary – $10,500 interest) ………………………..…
33,750
33,750
Totals …………………………..…………………………..
$37,950
$112,050
Problem D-2A (50 minutes)
1.
Dec. 31
Income Summary …………………………..…………………
249,000
Kara Ries, Capital …………………………………….…
83,000
Tammy Bax, Capital ……………………………………
83,000
Joe Thomas, Capital ……………………………………
83,000
To close Income Summary.
2.
Dec. 31
Income Summary …………………………..…………………
249,000
Kara Ries, Capital …………………………………….…
62,250
Tammy Bax, Capital ……………………………………
87,150
Joe Thomas, Capital ……………………………………
99,600
To close Income Summary*.
*Supporting computations
($80,000/$320,000) x $249,000 = $62,250
($112,000/$320,000) x $249,000 = $87,150
($128,000/$320,000) x $249,000 = $99,600
3.
Dec. 31
Income Summary …………………………..…………………
249,000
Kara Ries, Capital …………………………………….…
79,000
Tammy Bax, Capital ……………………………………
72,200
Joe Thomas, Capital ……………………………………
97,800
To close Income Summary*.
*Supporting calculations
Ries
Bax
Thomas
Total
Net income ……………………………….………..
$249,000
Salary allowances
Ries……………………………………….………..
$66,000
Bax………………………………………..………..
$56,000
Thomas …………………………………………..
$80,000
Total salaries ……………………………………..
202,000
Balance after salary allowances …………..
47,000
Interest allowances
Ries (10% on $80,000) …………….………..
8,000
Bax (10% on $112,000) ……………………..
11,200
Thomas (10% on $128,000) ……..………..
12,800
Total interest …………………………….………..
32,000
Bal. after interest and salaries ……………..
15,000
Balance allocated equally ………….………..
5,000
5,000
5,000
Total allocated equally ………………………..
15,000
Balance of income …………………….…….
______
______
______
$ 0
Shares of the partners……………….………..
$79,000
$72,200
$97,800
Problem D-3A (40 minutes)
Part 1
Income (Loss)
Sharing Plan
Calculations
Bill
Bruce
Barb
Total
(a)
$450,000/3 ……………………………………………………….
$150,000
$150,000
$150,000
$450,000
(b)
$450,000 x ($67,500/$750,000) ……….………………….
40,500
$450,000 x ($262,500/$750,000) ……..……………………
157,500
$450,000 x ($420,000/$750,000) ……..……………………
_______
_______
252,000
Total allocated ……………………………..………………………..
$ 40,500
$157,500
$252,000
$450,000
(c)
Net income …………………………..…………………………..
$450,000
Salary allowances ……………………….….
$ 80,000
$ 60,000
$ 90,000
(230,000)
Balance of income ……………………….….
220,000
Interest allowances
10% x $67,500 ……………………………………………………….
6,750
10% x $262,500 …………………………..
26,250
10% x $420,000 …………………………..
42,000
Total interest ………………………………..……………………..
(75,000)
Bal. of income …………………………..…………………………..
145,000
Balance allocated ……………………….….
29,000
58,000
58,000
(145,000)*
Balance of income ……………………….….
$ 0
Shares of partners ……………………….….
$115,750
$144,250
$190,000
Problem D-3A (Concluded)
Part 2
BBB PARTNERSHIP
Statement of Partners’ Equity
For Year Ended December 31
Bill
Bruce
Barb
Total
Beginning capital balances …..………
$ 0
$ 0
$ 0
$ 0
Plus
Investments by owners ………………
67,500
262,500
420,000
750,000
Net income
Salary allowances ……………..………
80,000
60,000
90,000
Interest allowances …………..………
6,750
26,250
42,000
Balance allocated 20%:40%:40%*
(19,200)
(38,400)
(38,400)
Total net income ……………….………
67,550
47,850
93,600
209,000
Total …………………………………….………
135,050
310,350
513,600
959,000
Less partners’ withdrawals ….………
(34,000)
(48,000)
(64,000)
(146,000)
Ending capital balances ……….………
$101,050
$262,350
$449,600
$813,000
*[$209,000 – ($80,000 + $60,000 + $90,000) – ($6,750 + $26,250 + $42,000)]; then allocated 20%:40%:40%.
Part 3
Income Summary ……………………………………………..
209,000
Bill Beck, Capital …………………………………….…..
67,550
Bruce Beck, Capital ……………………………………..
47,850
Barb Beck, Capital …………………………………..…..
93,600
To close Income Summary.
Bill Beck, Capital ………………………………………….…..
34,000
Bruce Beck, Capital …………………………………………..
48,000
Barb Beck, Capital ………………………………………..…..
64,000
Bill Beck, Withdrawals …………………………….…..
34,000
Bruce Beck, Withdrawals ………………………..…
48,000
Barb Beck, Withdrawals …………………………..
64,000
To close withdrawals accounts.