978-1133939283 Chapter 12 Solution Manual Part 4

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Income of Partner

Zadoney Slater Distributed

—

Remaining Income

P8. Comprehensive Partnership Transactions

Computation: Income

2013

Distribution of income for the period

to the partners’ Capital accounts

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Total bonus

2014

P8. Comprehensive Partnership Transactions (Continued)

To distribute the income for the year

$108,000

2014

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Zadoney Slater Nissan Distributed

—

P8. Comprehensive Partnership Transactions (Continued)

Income (Loss) of Partner

Remaining Income

Computation: Income

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Distribution to Nissan in liquidation

2015

P8. Comprehensive Partnership Transactions (Continued)

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Accounts Zadoney, Slater, Nissan, Gain (or

Receivable Building Equipment Accounts Mortgage Capital Capital Capital Loss) from

$ 814,400 $ 136,000 $ 160,000 $ 896,000 $ 472,000 $ 176,000 $ 448,000 $ 812,080 $ 508,720 $ 533,600

$1,214,400 $ 136,000 $ 160,000 $ 896,000 —$ 176,000 $ 448,000 $ 812,080 $ 508,720 $ 533,600 $(72,000)

$1,038,400 $ 136,000 $ 160,000 $ 896,000 —$ 448,000 $ 812,080 $ 508,720 $ 533,600 $(72,000)

(24,000) (24,000) (24,000) 72,000

$1,038,400 $ 136,000 $ 160,000 $ 896,000 $ 448,000 $ 788,080 $ 484,720 $ 509,600 —

$ 858,320 $ 136,000 —— — — $ 484,720 $ 509,600

$ 509,600 ——$ 509,600

— —

* Zadoney

** Slater

*** Nissan

January 1, 2015

P8. Comprehensive Partnership Transactions (Concluded)

Zadoney, Slater, and Nissan Partnership

Statement of Liquidation

Distribution of Assets to Slater

Distribution of Assets to Zadoney

Explanation

Sale of Equipment

Balance 1/1/15

Distribution of Gain (or Loss) from

Payment of Accounts Payable

Distribution of Cash to Nissan

Realization

* ** ***

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Today’s date

Cases

C1. Conceptual Understanding: Distribution of Partnership Income and Losses

Memorandum

Date:

To: Partners Landow, Donovan, and Hansa

From: Your Name

Re: Plan for Distributing Profits and Losses

A variety of plans are possible. However, this plan takes into account the capital contributed and

cause each partner is bringing different assets and talents to the partnership. The risks and

time are compensated in 1 and 2.

Allow a base salary of $20,000 to Hansa and $10,000 to Landow to compensate them for the

Divide any remaining income and losses equally. An equal distribution seems equitable be-

When the company is very profitable, the partners will receive nearly equal distributions because

Donovan will get an interest distribution of $24,000 before losses, which is more than either Lan-

the business. If the company loses a large amount of money, Donovan will lose the least because

item 3 will be the largest category, but Donovan will always earn the greatest absolute amount

There is no set solution to this case because each partnership agreement is different. The agree-

ment should be titled “Partnership Agreement,” and each provision should have a heading. Usu-

ally one or two sentences will suffice to spell out the details of each provision. The document

should be dated and signed. This case is an excellent group assignment and reinforces the im-

dow or Hansa will receive. Hansa has the most to lose if the company has large losses because

portance of the partnership agreement and the difficulty of taking into account all future events.

Hansa, who provided no capital to the partnership, will have to use personal assets to cover any

losses allocated to Hansa’s Capital account. Of course, if Hansa has no personal assets, then

Hansa’s share of the losses will have to be absorbed by Landow and Donovan.

C2. Conceptual Understanding: Partnership Agreement

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ing markets like China. First, Nokia gains political sanction by joining forces with the government-

Many joint ventures have failed because the participants could not work with each other. Third, if

the venture is successful, the profits must be split among the partners, thus reducing the potential

gains for any one partner.

owned company. Second, it gains access to a huge and growing market. Third, it provides a vehicle

to develop ties with local suppliers, which is required by the Chinese government. Fourth, the

amount of capital it provides is limited and if the project fails, its losses are limited.

Joint ventures provide several advantages for companies entering new markets, particularly emerg-

There are also potential disadvantages to the joint venture form. First, if any member of the ven-

C4. Conceptual Understanding: International Joint Ventures

and the related malpractice insurance should be disclosed in the notes to the partnership’s

C3. Interpreting Financial Reports: Effects of a Lawsuit on Partnership

The lawsuit filed against Springfield Clinic is a contingent liability, and the fact of its existence

The personal financial resources of the partner or partners with debit balances would suffer.

Loss on Settlement of Lawsuit would then be closed to partners’ equity and distributed to each

partner’s Capital account in accordance with the stated ratios in the partnership agreement. Be-

Each would be required to pay into the partnership an amount equal to the debit balance of his

partners must make up the difference. All partners, including those with credit capital balances,

ances, will also suffer financial strain because additional contributions of cash to the partner-

ship will be necessary. After payment for the loss of $100,000, only $146,000 in current assets

remain to continue operations. Current liabilities, however, are $180,000.

or her Capital account because partners have unlimited liability for the liabilities of the partner-

ship. If any partner is unable to make up the debit balance in his or her account, the remaining

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A more equitable distribution may be to take into consideration that the business is worth more

C5. Ethical Dilemma: Death of a Partner

The case illustrates the problems that arise when partners do not have a definite agreement

Several possible distributions can be supported. One is that Tyler’s estate is entitled to his capital

Note to Instructor: This is a good case for small groups and class presentations.

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C6. Conceptual Understanding: Comparison of Career Opportunities in Partnerships

The partnership chapter provides an excellent opportunity to expose students to the possibilities

C6. and Corporations

manager never truly becomes an owner of the corporation in the sense of sharing the profits of

the company.

the services offered and the nature of the partnership form of business as compared to the cor-

porate form. For example, in the CPA firms, all the partners are “owners” and have a stake in

the business. A student can potentially become a partner and owner after about ten years with

the firm. With a corporation, it is possible to receive stock options after a certain point, but a

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