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Chapter 15 - Partnerships: Formation, Operation, and Changes in Membership
Copyright © 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not
authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded,
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SOLUTIONS TO EXERCISES
E15-1 Multiple-Choice Questions on Initial Investment [AICPA Adapted]
1. a –
2. c –
3. d –
4. b – $330,000 = $50,000 + ($310,000 - $30,000)
5. d –
E15-2 Division of Income — Multiple Bases
a.
Distribution of $80,000 income:
Angela
Dawn
Total
Profit percentage
70%
30%
100%
Average capital
$ 50,000
$ 30,000
Net income
$ 80,000
Interest on average capital (10%)
$ 5,000
$ 3,000
(8,000)
Salary
25,000
15,000
(40,000)
Residual income
$ 32,000
Allocate 70%:30%
22,400
9,600
(32,000)
Total
$ 52,400
$ 27,600
$ -0-
b.
Distribution of $20,000 income:
Angela
Dawn
Total
Profit percentage
70%
30%
100%
Average capital
$ 50,000
$ 30,000
Net income
$ 20,000
Interest on average capital (10%)
$ 5,000
$ 3,000
(8,000)
Salary
25,000
15,000
(40,000)
Residual income (deficit)
$ (28,000)
Allocate 70%:30%
(19,600)
(8,400)
28,000
Total
$ 10,400
$ 9,600
$ -0-
Section 401 of the UPA 1997 states that, “Each partner is entitled to an equal share of
the partnership profits and is chargeable with a share of the partnership losses in
proportion to the partner’s share of the profits.”
Chapter 15 - Partnerships: Formation, Operation, and Changes in Membership
E15-6 Admission of a Partner
a.
Determine required payment if no bonus or goodwill recognized:
2/3 total resulting capital
$ 400,000
Total resulting capital
($400,000 / 0.66666…)
$ 600,000
Total net assets prior to admission
(400,000)
Required contribution ($600,000 x 0.3333)
$ 200,000
Therefore, Elan must invest $200,000 for a 1/3 interest.
b.
Elan invests $80,000 for 20 percent interest; goodwill recorded:
Investment in partnership
$ 80,000
New partner's proportionate book value
[($400,000 + $80,000 ) x 0.20]
(96,000)
Difference (investment cost < book value)
$ (16,000)
Method: Goodwill to new partner
Step 1:
4/5 estimated total resulting capital
$ 400,000
Estimated total resulting capital
($400,000 / 0.80)
$ 500,000
Step 2:
Estimated total resulting capital
$ 500,000
Total net assets not including goodwill
($400,000 + $80,000)
(480,000)
Estimated goodwill to new partner
$ 20,000
Cash
80,000
Goodwill
20,000
Elan, Capital
100,000
$100,000 = $500,000 x 0.20
