Appendix D – Accounting for Partnerships
Problem D-4B (Concluded)
Part 2
a)
Apr. 30
Cash ………………………………………………………………..
300,000
Chip, Capital*……………………………………………...
300,000
To record admission of Chip.
* Supporting calculations
$606,000 + $148,000 + $446,000 = $1,200,000
($1,200,000 + $300,000) x 20% = $300,000
Thus, no bonus is received or granted.
b)
Apr. 30
Cash ………………………………………………………………..
196,000
Gibbs, Capital ($83,200* x 5/10) …………………………..
41,600
Cook, Capital ($83,200* x 1/10) …………………………...
8,320
Chan, Capital ($83,200* x 4/10) …………………………...
33,280
Chip, Capital ……………………………………………….
279,200
To record Chip’s admission and bonus.
* Supporting calculations
($1,200,000 + $196,000) x 20% = $279,200
$196,000 – $279,200 = $(83,200)
Thus, the new partner receives a bonus.
c)
Apr. 30
Cash ………………………………………………………………..
426,000
Gibbs, Capital ($100,800* x 5/10) …………………….
50,400
Cook, Capital ($100,800* x 1/10) ……………………..
10,080
Chan, Capital ($100,800* x 4/10) ……………………..
40,320
Chip, Capital ………………………………………………..
325,200
To record admission of Chip and bonus
to old partners.
* Supporting calculations
($1,200,000 + $426,000) x 20% = $325,200
$426,000 – $325,200 = $100,800
Thus, the old partners receive a bonus.
Problem D-5B (75 minutes)
1.
(a)
Cash …………………………………………………………..……
650,000
Equipment ……………………………………………..……
617,200
Gain on Sale of Equipment ……………………..……
32,800
(b)
Gain on Sale of Equipment …………………………..
32,800
Lasure, Capital ($32,800 x 2/5) ………………………
13,120
Ramirez, Capital ($32,800 x 1/5) ……………………
6,560
Toney, Capital ($32,800 x 2/5) ………………….……
13,120
(c)
Accounts Payable ……………………………………….……
342,600
Cash ……………………………………………………….
342,600
(d)
Lasure, Capital ($300,400 + $13,120) …………………
313,520
Ramirez, Capital ($195,800 + $6,560) …………………
202,360
Toney, Capital ($127,000 + $13,120) ……………..……
140,120
Cash* ……………………………………………………....
656,000
* $348,600 + $650,000 – $342,600
2.
(a)
Cash …………………………………………………………..……
530,000
Loss on Sale of Equipment …………………………..
87,200
Equipment ……………………………………………..……
617,200
(b)
Lasure, Capital ($87,200 x 2/5) ……………………..……
34,880
Ramirez, Capital ($87,200 x 1/5) …………………..……
17,440
Toney, Capital ($87,200 x 2/5) …………………………..
34,880
Loss on Sale of Equipment ……………………..……
87,200
(c)
Accounts Payable ……………………………………….……
342,600
Cash ……………………………………………………….
342,600
(d)
Lasure, Capital ($300,400 – $34,880) …………….……
265,520
Ramirez, Capital ($195,800 – $17,440) …………..……
178,360
Toney, Capital ($127,000 – $34,880) ……………………
92,120
Cash* ……………………………………………………....
536,000
* $348,600 + $530,000 – $342,600
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McGraw-Hill Education.
Financial Accounting, 7th Edition
34
1. Adria Lopez 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
with her partner. However, if the business experiences losses, Lopez
Jan. 1
Cash ………………………………………………………………..
90,148
New Partner, Capital …………………………………….
90,148
To admit a new partner at a 1:1 ownership interest
2b.
Jan. 1
Cash ………………………………………………………………..
22,537
New Partner, Capital …………………………………….
22,537
To admit a new partner at a 4:1 ownership interest
($90,148 x 1/4 = $22,537).
3.
Jan. 1
Cash ………………………………………………………………..
22,537
New Partner, Capital …………………………………….
22,537
To admit a new partner at a 4:1 ownership interest.
4.
Total capital before admission of partner …………………….
$ 90,148
Partner investment ……………………………………………………..
22,537
Total capital after admission of partner ……………………….
$112,685
New partner’s equity percentage ($22,537 / $112,685) …..
20%
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McGraw-Hill Education.
Solutions Manual, Appendix D
35
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
that Chesterfield is the group’s largest producer and, therefore, is
entitled to the largest income. However, Chesterfield’s proposal does
not recognize that a good portion of Chesterfield’s income is due to the
Appendix D – Accounting for Partnerships
Communicating in Practice — BTN D-2
— 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
allocating incomes and losses between general and limited partners.
• The same basic accounting procedures are used for both limited and
general partnerships.
II. Limited Liability Partnerships
• This is identified in its name with the words “Limited Liability Partnership”
or by “LLP.”
• This type of partnership is designed to protect innocent partners from
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McGraw-Hill Education.
Solutions Manual, Appendix D
37
Company” or an abbreviation such as “LLC” or “LC.”
• This form of business has certain features like a corporation and others
like a limited partnership. The owners, who are called members, are
protected with the same limited liability feature in corporations. While
limited partners cannot actively participate in the management of a limited
partnership, the members of a limited liability company can assume an
Appendix D – Accounting for Partnerships
1. The account titles given in the equity section of America First Tax
Exempt Investors, L.P are:
2. There are 30,122,928 units with a value of $161,389,189 at December 31,
2010.
3. The largest asset held by America First is ‘Buildings and improvements’
with a gross value (before accumulated depreciation) of $91,802,694.
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McGraw-Hill Education.
Solutions Manual, Appendix D
39
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
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McGraw-Hill Education.
Financial Accounting, 7th Edition
40
1. Omar, Nick, 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 Omar, Nick, and their partners. Three of these include:
3. Several disadvantages exist with the partnership form of organization.
Three of these include: (a) The greatest disadvantage is that each