Appendix D – Accounting for Partnerships
Exercise D-6 (35 minutes)
Kramer
Knox
Total
1.
Net income …………………………………………….
$ 98,800
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 salaries and interest ………….………….
104,000
Balance of income ……………………..……
(5,200)
Remainder equally
($5,200)/2 …………………………..……….………….
(2,600)
(2,600)
(5,200)
Balance of income ……………………..……
_______
_______
$ 0
Shares each partner …………………..………
$53,400
$ 45,400
2.
Net income …………………………………………….
$ (16,800)
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 salaries and interest ………….………….
104,000
Balance of income ……………………..……
(120,800)
Remainder equally
$(120,800)/2 ………………………………..………….
(60,400)
(60,400)
120,800
Balance of income ……………………..……
_______
_______
$ 0
Shares of each partner ……………….………….
$ (4,400)
$(12,400)
Exercise D-7 (25 minutes)
1.
Nov. 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-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. Liability to be paid
Each partner should pay the amount of the debit (deficit) balance in his
or her own capital account.
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Financial Accounting, 7th Edition
16
Problem D-1A (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-2A (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-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
Dec. 31
Income Summary ……………………………………………..
209,000
Bill Beck, Capital …………………………………….…..
67,550
Bruce Beck, Capital ……………………………………..
47,850
Barb Beck, Capital …………………………………..…..
93,600
To close Income Summary.
Dec. 31
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.