Appendix D – Accounting for Partnerships
© 2015 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
Solutions Manual, Appendix D
1
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
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
6. If partners agree on the method of sharing incomes, but say nothing of losses, then
7. The allocation of net income to the partners is reported on the statement of partners’
equity.
8. Unlimited liability means that the creditors of a partnership have the right to require
9. George’s claim is not valid unless the previously agreed upon method of sharing net
incomes and losses granted George an annual salary allowance of $25,000. Unless
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
© 2015 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
Solutions Manual, Appendix D
3
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 (15 minutes)
Stolton
Bright
Total
Net income ……………………………………...
52,000
Salary allowances
Stolton ………………………………………....
$15,000
Bright …………………………………………...
$20,000
Total salary allowances ………………...
35,000
Balance of income …………………………..
17,000
Balance allocated equally
Stolton ………………………………………....
8,500
Bright …………………………………………...
8,500
Total allocated equally …………………..
17,000
Balance of income …………………………..
______
______
$ 0
Shares of the partners ……………………..
$23,500
$28,500
Quick Study D-3 (10 minutes)
Quick Study D-4 (10 minutes)
Quick Study D-5 (10 minutes)
Choi, Capital …………………………………………………………………...
10,000
Amal, Capital …………………………..……………………………………...
10,000
Stein, Capital …………………………..………………………………....
20,000
To record admission of Stein by purchase.
Quick Study D-6 (10 minutes)
Cash …………………………..…………………………………………………..
40,000
Kwon, Capital ……………………………………………………………..
40,000
To record admission of Kwon.
Quick Study D-8 (15 minutes)
Total partnership return on equity = Net Income/Average equity
= $25,025 / ($150,000 + $200,000)/2
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
no past business experience will probably have trouble getting a
Advantages: Several key advantages to the corporate form include its
limited liability and the potential to sell more stock if additional funds
are needed.
b. Recommended Organization: The two doctors should form a
partnership. A general partnership will have the disadvantage of
He can raise the necessary capital by admitting limited partners.
Taxation: All partners will pay individual taxes on income distributed to
them, but the partnership entity will not pay income tax.
Advantages: Advantages to Munson will be authority over the
partnership that he will have as general partner and the ease of raising
Exercise D-4 (25 minutes)
1.
Jan. 1
Cash ………………………………………………………………..
17,500
Equipment ……………………………………………………….
82,500
Note Payable ……………………………………………...
25,000
A. Moss, Capital ………………………………………….
75,000
To record initial capital investment of Moss.
2.
Jan. 1
Cash ………………………………………………………………..
31,250
A. Barber, Capital ……………………………………….
31,250
To record initial capital investment of Barber.
Exercise D-5 (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
($80,000/$140,000) x $160,000 …..…………….
______
$91,429
91,429
$68,571
$91,429
$160,000
Plan (3)
Net income …………………………………………….
$160,000
Salary allowances …………………………..
$50,000
$40,000
90,000
Interest allowances
($60,000 x 10%) …………………………..
6,000
6,000
($80,000 x 10%) …………………………..
8,000
8,000
Total salary and interest …………..…………….
104,000
Balance of income …………………………..
56,000
Balance allocated equally
($56,000)/2 ……………………………….…………….
28,000
28,000
56,000
Balance of income …………………………..
.
.
$ 0
Shares of each partner …………….…………….
$84,000
$76,000