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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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© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
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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2.
3.
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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1.
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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