CHAPTER 12
Accounting for Partnerships
ASSIGNMENT CLASSIFICATION TABLE
Learning Objectives
Questions
Brief
Exercises
Do It!
Exercises
A
Problems
1. Discuss and account
for the formation of a
partnership.
1, 2, 3, 4, 5,
17
1, 2
1
1, 2, 3
1A
2. Explain how to account for
net income or net loss of a
partnership.
6, 7, 8, 9, 10,
11
3, 4, 5
2
4, 5, 6, 7
1A, 2A
3. Explain how to account for
12, 13, 14, 15,
6
8, 9, 10
3A
*4. Prepare journal entries when
a new partner is either
admitted or withdraws.
18, 19, 20, 21,
7, 8, 9, 10
11, 12, 13, 14,
15
4A, 5A
ASSIGNMENT CHARACTERISTICS TABLE
Problem
Number
Description
Difficulty
Level
Time
Allotted (min.)
1A
Prepare entries for formation of a partnership
and a balance sheet.
Simple
20–30
2A
Journalize divisions of net income and prepare
a partners’ capital statement.
Moderate
30–40
3A
Prepare entries with a capital deficiency in liquidation
of a partnership
Moderate
30–40
Journalize withdrawal of a partner under different
Moderate
30–40
WEYGANDT ACCOUNTING PRINCIPLES 12E
CHAPTER 12
ACCOUNTING FOR PARTNERSHIPS
Number
LO
BT
Difficulty
Time (min.)
BE1
1
AP
Simple
2–4
BE2
1
AP
Simple
3–5
BE3
2
AP
Simple
4–6
BE4
2
AP
Simple
4–6
BE5
2
AP
Simple
6–8
BE6
3
AP
Simple
2–4
4
AP
Simple
2–4
4
AP
Simple
3–5
4
AP
Simple
2–4
*BE10
4
AP
Simple
3–5
DI1
1
C
Simple
2–4
DI2
2
AP
Simple
4–6
DI3a
3
AP
Simple
8–10
DI3b
3
AP
Moderate
6–8
EX1
1
C
Simple
6–8
EX2
1
AP
Simple
6–8
EX3
1
AP
Simple
4–6
EX4
2
AP
Simple
10–12
EX5
2
AP
Simple
8–10
EX6
2
AP
Simple
6–8
EX7
2
AP
Simple
8–10
EX8
3
AP
Simple
6–8
EX9
3
AP
Simple
6–8
EX10
3
AP
Simple
6–8
*EX11
4
AP
Simple
4–6
*EX12
4
AP
Simple
6–8
*EX13
4
AP
Simple
4–6
*EX14
4
AP
Moderate
8–10
*EX15
4
AP
Moderate
6–8
P1A
1, 2
AP
Simple
20–30
P2A
2
AP
Moderate
30–40
P3A
3
AP
Moderate
30–40
ACCOUNTING FOR PARTNERSHIPS (Continued)
Number
LO
BT
Difficulty
Time (min.)
*P4A
4
AP
Moderate
30–40
*P5A
4
AP
Moderate
30–40
BYP1
—
C
Simple
8–10
BYP2
Simple
15–20
BYP3
1
S
Simple
10–15
BYP4
2
E
Simple
10–15
BYP5
1
S
Simple
15–20
BLOOM’ S TAXONOMY TABLE
Correlation Chart between Bloom’s Taxonomy, Learning Objectives and End–of-Chapter Exercises and Problems
Learning Objective
Knowledge
Comprehension
Application
Analysis
Synthesis
Evaluation
1. Discuss and account for
the formation of a
partnership.
Q12-1 Q12-17
Q12-2 DI12-1
Q12-3 E12-1
Q12-4
Q12-5
BE12-1
BE12-2
E12-2
E12-3
P12-1A
2. Explain how to account for
net income or net loss of a
Q12-6
Q12-7
Q12-8
Q12-10
E12-5
EI12-6
3. Explain how to account for
the liquidation of a
partnership.
Q12-12
Q12-13
Q12-14
Q12-15
Q12-16
BE12-6
DI12-3a
DI12-3b
E12-8
E12-9
E12-10
P12-3A
*4. Prepare journal entries
when a new partner is
either admitted or
withdraws.
Q12-18
Q12-19
Q12-23
Q12-24
Q12-20
Q12-21
Q12-22
BE12-7
E12-12
E12-13
E12-14
E12-15
partnership.
Q12-9
BE12-3
EI12-7
ANSWERS TO QUESTIONS
1. (a) Association of individuals. A partnership is a voluntary association of two or more individuals
based on as simple an act as a handshake. Preferably, however, the agreement should be in
writing. A partnership is both a legal entity and an accounting entity, but it is not a taxable entity.
(b) Limited life. A partnership does not have unlimited life. A partnership may be ended voluntarily
or involuntarily. Thus, the life of a partnership is indefinite. Any change in the members of a
2. (a) Mutual agency. This characteristic means that the act of any partner is binding on all other
partners when engaging in partnership business. This is true even when the partners act
beyond the scope of their authority, so long as the act appears to be appropriate for the
partnership.
(b) Unlimited liability. Each partner is personally and individually liable for all partnership liabilities.
Creditors’ claims attach first to partnership assets and then to personal resources of any
partner, irrespective of that partner’s equity in the partnership.
3. The advantages of a partnership are: (1) combining skills and resources of two or more individuals,
(2) ease of formation, (3) freedom from governmental regulations and restrictions, and (4) ease
of decision making. Disadvantages are: (1) mutual agency, (2) limited life, and (3) unlimited liability.
7. Factors to be considered in determining how income and loss should be divided are: (1) a fixed
ratio is easy to apply and it may be an equitable basis in some circumstances; (2) capital balance ratios,
when the funds invested in the partnership are considered the most critical factor; and (3) salary
allowance and/or interest allowance coupled with a fixed ratio. This last approach gives specific
recognition to differences that may exist among partners by providing salary allowances for time
worked and interest allowances for capital invested.
8. The net income of $42,000 should be divided equally—$21,000 to M. Elston and $21,000 to R. Ogle
Questions Chapter 12 (Continued)
10.
Division of Net Income
T. Greer
R. Parks
Total
Salary Allowance ………………………………………
Deficiency: ($15,000)
($40,000 – $55,000)
($30,000)
($25,000)
($55,000)
11. The financial statements of a partnership are similar to those of a proprietorship. The differences
are due to the number of partners involved. The income statement for a partnership is identical to
the income statement for a proprietorship except for the detailed information concerning the division
12. Liquidation of a partnership ends both the legal and economic life of the entity. Partnership
dissolution occurs whenever a partner withdraws or a new partner is admitted. Dissolution does not
necessarily mean that the business ends. If the continuing partners agree, operations can continue
without interruption by forming a new partnership.
13. No, Roger is not correct. All gains and losses on liquidation should be allocated to the partners
on the basis of their income ratio. However, final cash distributions should be based on their
capital balances.
15. Total cash after paying liabilities …………………………………………………………………… $103,000
Total capital balances ($34,000 + $31,000 + $28,000) …………………………………….. 93,000
Excess (gain on sale of noncash assets) ……………………………………………………….. $ 10,000
16. Capital deficiency, M. Luthi ………………………………………………………………………….. $ 4,000
Loss allocated to: L. Seastrom, capital ($4,000 X 3/8) …………………………………….. $ 1,500
17. A partnership is an association of two or more persons to carry on as co-owners of a business for
profit. Apple is a corporation since its has thousands of owners (called stockholders).
Questions Chapter 12 (Continued)
*18. This transaction represents the purchase of an existing partner’s interest. It is a personal trans–
action that has no effect on partnership net assets.
*20. Jamar, Capital …………………………..………………………………………………… 68,000
Parsons, Capital ……………………………………………………………………. 68,000
*22. Pester’s share of the $4,000 bonus is computed as follows:
Partnership assets ………………………………………………………………… $85,000
Capital credit, Riley ……………………………………………………………….. 81,000
Bonus to retiring partner …………………………………………………………. 4,000
*23. Recording the revaluations violates the cost principle, which requires that assets be stated at
original cost. It is also a departure from the going-concern assumption, which assumes the entity
will continue indefinitely.
SOLUTIONS TO BRIEF EXERCISES
BRIEF EXERCISE 12-1
Cash …………………………………………………………………….. 10,000
Equipment…………………………………………………………….. 4,000
Fred Nichols, Capital ………………………………………. 14,000
BRIEF EXERCISE 12-2
BRIEF EXERCISE 12-3
The division is: Rod $45,000 ($75,000 X 60%) and Dall $30,000 ($75,000 X 40%).
The entry is:
BRIEF EXERCISE 12-4
Division of Net Income
Pitts
Filbert
Witten
Total
Salary allowance …………………..
Remaining income, $20,000:
($45,000 – $25,000)
$15,000
$ 5,000
$ 5,000
$25,000
BRIEF EXERCISE 12-5
Division of Net Income
Nabb
Fry
Total
Salary allowance …………………………………..
Interest allowance …………………………………
Remaining deficiency, ($6,000):
$15,000
7,000
$10,000
5,000
$25,000
12,000
BRIEF EXERCISE 12-6
A, Capital ………………………………………………………………… 8,000
*BRIEF EXERCISE 12-7
*BRIEF EXERCISE 12-8
Cash ………………………………………………………………………. 58,000
Irey, Capital (50% X $8,600*) …………………………………….. 4,300
*BRIEF EXERCISE 12-9
Fernetti, Capital ……………………………………………………….. 20,000
*BRIEF EXERCISE 12-10
Fernetti, Capital ……………………………………………………….. 20,000
SOLUTIONS FOR DO IT! REVIEW EXERCISES
DO IT! 12-1
1. True.
2. False. If a partnership is dissolved, each partner has a claim on total
assets equal to the balance in his or her capital account. The claim
DO IT! 12-2
The division of net income is as follows:
Miley
Guthrie
Total
Salary allowance …………………………………..
Remaining income ($75,000 – $43,000)
$25,000
$18,000
$43,000
DO IT! 12-2 (Continued)
DO IT! 12-3a
Item
Cash
+
Noncash
Assets
=
Liabilities
+
Cisneros
, Capital
+
Gunselman,
Capital
+
Forren,
Capital
Balance before
liquidation
15,000
90,000
40,000
20,000
32,000
13,000
(40,750)
Sale of noncash assets
DO IT! 12-3b
Oakley, Capital ($14,000 X 3/7) ………………………………….. 6,000
Ellis, Capital ($14,000 X 4/7) ………………………………………. 8,000
SOLUTIONS TO EXERCISES
EXERCISE 12-1
1. False. A partnership is an association of two or more persons to carry
on as co-owners of a business for profit.
2. False. Partnerships are fairly easy to form; they can be formed simply
EXERCISE 12-2
(a) Cash …………………………………………………………………. 50,000
Decker, Capital …………………………………………… 50,000
Land …………………………………………………………………. 15,000
Buildings ………………………………………………………….. 80,000
Rosen, Capital …………………………………………… 95,000
EXERCISE 12-3
Jan. 1 Cash …………………………………………………………. 12,000
Accounts Receivable …………………………………. 14,000
Equipment ………………………………………………….. 23,500
EXERCISE 12-4
(a)
(1)
DIVISION OF NET INCOME
McGill
Smyth
Total
Salary allowance ………………………….
Interest allowance
McGill ($50,000 X 10%) …………..
Smyth ($40,000 X 10%) …………..
$22,000
5,000
$13,000
4,000
$35,000
(2)
DIVISION OF NET INCOME
McGill
Smyth
Total
Salary allowance ………………………….
Interest allowance ………………………..
($22,000)
( 5,000)
($13,000
( 4,000
$35,000
9,000
(b) (1) Income Summary ………………………………………. 50,000
McGill, Capital ……………………………………… 30,600
EXERCISE 12-5
(a) Income Summary ……………………………………………… 80,000
Coburn, Capital ($80,000 X 45%) …………………. 36,000
Webb, Capital ($80,000 X 55%) ……………………. 44,000
(b) Income Summary ……………………………………………… 80,000
(c) Income Summary ………………………………………………. 80,000
Coburn, Capital ………………………………………….. 41,000
Webb, Capital …………………………..………………… 39,000
EXERCISE 12-6
(a) NATIONAL CO.
Partners’ Capital Statement
For the Year Ended December 31, 2017
N. Payne
A. Dody
Total
Capital, January 1 ………………..
Add: Net income …………………
$20,000
20,000
$18,000
20,000
$38,000
40,000
EXERCISE 12-6 (Continued)
(b) NATIONAL CO.
Partial Balance Sheet
December 31, 2017
Owners’ equity
EXERCISE 12-7
THE DOCTOR PARTNERSHIP
Balance Sheet
December 31, 2017
Assets
Current Assets
Cash ($30,000 + $7,000) ………………………… $37,000
Accounts Receivable ……………………………. $36,000
Total current assets …………………………. $ 72,000
Property, Plant and Equipment
Land ……………………………………………………. 28,000
Buildings …………………………………………….. 75,000
Liabilities and Owners’ Equity
Long-term Liabilities
Mortgage Payable ………………………………… $ 20,000
Owners’ Equity
Terry, Capital ($30,000 + $25,000) ………….. $55,000
EXERCISE 12-8
SEDGWICK COMPANY
Schedule of Cash Payments
Item
Cash
+
Noncash
Assets
=
Liabilities
+
Floyd,
Capital
+
DeWitt,
Capital
Balances before
liquidation
Sale of noncash
assets and allo-
$ 20,000
($100,000)
($55,000)
$45,000
$20,000
EXERCISE 12-9
(a) Cash ………………………………………………………………. 105,000
Noncash Assets ………………………………………. 100,000
Gain on Realization ………………………………….. 5,000
(d) Floyd, Capital …………………………..…………………….. 48,000
DeWitt, Capital …………………………..…………………… 22,000
Cash ……………………………………………………….. 70,000
EXERCISE 12-10
(a) (1) Cash …………………………………………………………. 8,000
Pena, Capital ………………………………………. 8,000
(b) (1) Vogel, Capital ($8,000 X 5/8) ……………………….. 5,000
Utech, Capital ($8,000 X 3/8) ……………………….. 3,000
Pena, Capital ………………………………………. 8,000
*EXERCISE 12-11
(a) K. Kolmer, Capital ($34,000 X 50%) ……………………. 17,000
D. Jernigan, Capital ……………………………………. 17,000
*EXERCISE 12-12
(a) Cash ………………………………………………………………… 90,000
S. Pagon, Capital (6/10 X $15,000) ……………….. 9,000
T. Tabor, Capital (4/10 X $15,000) ………………… 6,000
W. Wolford, Capital ……………………………………. 75,000
*EXERCISE 12-12 (Continued)
Investment by new partner, Wolford …. $ 90,000
Wolford’s capital credit ……………………. 75,000
Bonus to old partners ……………………… $ 15,000
(b) Cash …………………………………………………………………. 50,000
S. Pagan, Capital (6/10 X $13,000) ………………………. 7,800
T. Tabor, Capital (4/10 X $13,000) ……………………….. 5,200
W. Wolford, Capital …………………………………….. 63,000
Investment by new partner, Wolford …. $ 50,000
Wolford’s capital credit ……………………. 63,000
Bonus to new partner ………………………. $ 13,000
*EXERCISE 12–13
1. C. Heganbart, Capital ………………………………………… 30,000
N. Essex, Capital ………………………………………… 15,000
C. Gilmore, Capital ……………………………………… 15,000