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*EXERCISE 12-14
1. N. Rice, Capital .......................................................... 60,000
B. Higgins, Capital .................................................... 2,500
J. Mayo, Capital ......................................................... 1,500
Cash ................................................................... 64,000
2. N. Rice, Capital .......................................................... 60,000
B. Higgins, Capital ............................................. 5,000
J. Mayo, Capital ................................................. 3,000
Cash ................................................................... 52,000
*EXERCISE 12-15
(a) Cash ...................................................................... 88,000
Garrett, Capital ($288,000a X 25%) .............. 72,000
Foss, Capital ($16,000 X 50%) ..................... 8,000
(b) Foss, Capital ........................................................ 100,000
Albertson, Capital ($10,000 X 3/5) ....................... 6,000
SOLUTIONS TO PROBLEMS
PROBLEM 12-1A
(a) Jan. 1 Cash ............................................................ 14,000
Accounts Receivable ................................. 17,500
Inventory .................................................... 28,000
Equipment .................................................. 25,000
1 Cash ............................................................ 12,000
Accounts Receivable ................................. 26,000
Inventory .................................................... 20,000
Equipment .................................................. 15,000
(b) Jan. 1 Cash ............................................................ 5,000
Sorensen, Capital ............................... 5,000
PROBLEM 12-1A (Continued)
(c) SOLU COMPANY
Balance Sheet
January 1, 2017
Assets
Current assets
Cash
($14,000 + $12,000 + $5,000 + $19,000) .... $ 50,000
Accounts receivable
($17,500 + $26,000) .................................... $43,500
Less: Allowance for doubtful accounts
Liabilities and Owners’ Equity
Current liabilities
Notes payable ($18,000 + $15,000) ............. $ 33,000
Accounts payable ($22,000 + $31,000) ...... 53,000
Total current liabilities ........................ 86,000
Owners’ equity
PROBLEM 12-2A
(a) (1) Income Summary .................................................. 30,000
(2) Income Summary .................................................. 40,000
A. Niensted, Capital ($15,000 + $5,000) ........ 20,000
G. Bolen, Capital ($10,000 + $5,000) ............. 15,000
K. Sayler, Capital ($0 + $5,000) ..................... 5,000
(3) Income Summary .................................................. 19,000
A. Niensted, Capital
($4,800 + $15,000 – $2,100) ...................... 17,700
G. Bolen, Capital ($3,000 – $2,100) ............... 900
K. Sayler, Capital ($2,500 – $2,100) .............. 400
Net income ............................ $19,000
Interest allowance
Niensted ($48,000 X 10%) . (4,800)
PROBLEM 12-2A (Continued)
(b)
DIVISION OF NET INCOME
Art
Niensted
Greg
Bolen
Krista
Sayler
Total
Salary allowance ........................
Interest allowance on capital
A. Niensted
($48,000 X 10%).................
G. Bolen
Remaining deficiency, ($6,300)
A. Niensted
($6,300 X 1/3) .....................
G. Bolen
$15,000
4,800
(
(2,100)
(
$15,000
(
(c) NBS COMPANY
Partners’ Capital Statement
For the Year Ended December 31, 2017
Art
Niensted
Greg
Bolen
Krista
Sayler
Total
Capital, January 1 ...............
$48,000
$30,000
$25,000
$103,000
PROBLEM 12-3A
(a) (1)
Cash ........................................................................... 51,000
Allowance for Doubtful Accounts ............................ 1,000
Accumulated Depreciation—Equipment ................. 5,500
(2)
A. Jamison, Capital ($23,000 X 5/10) ....................... 11,500
(3)
Notes Payable ........................................................... 13,500
Accounts Payable ..................................................... 27,000
(4)
Cash ........................................................................... 1,600
P. Roper, Capital ($4,600 – $3,000) ................... 1,600
(5)
A. Jamison, Capital ($33,000 – $11,500) .................. 21,500
PROBLEM 12-3A (Continued)
(b)
Cash
A. Jamision, Capital
Bal. 27,500
(3) 44,500
(2) 11,500
Bal. 33,000
S. Moyer, Capital
P. Roper, Capital
(2) 6,900
Bal. 21,000
(2) 4,600
Bal. 3,000
(c) (1) A. Jamison, Capital ($1,600 X 5/8) .................... 1,000
(2) A. Jamison, Capital ($21,500 – $1,000) ............ 20,500
*PROBLEM 12-4A
(a) (1) J. Pinkston, Capital ........................................... 9,000
J. Terrell, Capital ........................................ 9,000
(2) C. Lamar, Capital ............................................... 16,000
J. Terrell, Capital ........................................ 16,000
(3) Cash ................................................................... 62,000
G. Donley, Capital (50% X $8,000) ............ 4,000
(4) Cash ................................................................... 42,000
G. Donley, Capital ($6,000 X 50%) .................... 3,000
C. Lamar, Capital ($6,000 X 40%) ..................... 2,400
*PROBLEM 12-4A (Continued)
Terrell’s capital credit
($160,000 X 30%) .............. $48,000
(b) (1) Total capital after admission ($32,000 ÷ 20%) .............. $160,000
Total capital before admission ...................................... 118,000
(2) Decrease in Lamar’s equity ($48,000 – $32,000) ............ $ 16,000
*PROBLEM 12-5A
(a) (1) Posada, Capital .................................................. 30,000
Trayer, Capital ............................................ 15,000
Emig, Capital ............................................... 15,000
(3) Posada, Capital .................................................. 30,000
Trayer, Capital ($4,000 X 5/8) ............................. 2,500
Emig, Capital ($4,000 X 3/8) ............................... 1,500
Cash ............................................................ 34,000
(4) Posada, Capital .................................................. 30,000
Trayer, Capital ($8,000 X 5/8) ..................... 5,000
Emig, Capital ($8,000 X 3/8) ....................... 3,000
Cash ............................................................ 22,000
(b) (1) Emig’s capital after withdrawal ..................................... $43,600
Emig’s capital before withdrawal .................................. 40,000
BYP 12-1 REAL-WORLD FOCUS
Students’ answers will depend upon the firm selected and the timing of
their exploration.
BYP 12-2 DECISION MAKING ACROSS THE ORGANIZATION
(a) The major disadvantages of a partnership are mutual agency, limited
life, and unlimited liability. Mutual agency means that each partner acts on
behalf of the partnership when engaging in partnership business. The act
of any partner is binding on all other partners, even when the partners
act beyond the scope of their authority, so long as the act appears to be
(b) The written partnership agreement, often referred to as the articles of
co-partnership, is needed. It should contain such basic information as
the name and principal location of the firm, the purpose of the business,
(c) The best approach would be to give Stephen an interest allowance for
(d) The computer equipment should be depreciated on the books of
the partnership, not on Stephen’s personal tax return. The computer is
owned by the partnership, and only Stephen’s share of net income
should be reported on his tax return. The computer would be reported
at its fair value when invested in the partnership, less the accumulated
depreciation as of the end of the taxable year.
BYP 12-2 (Continued)
(e) To facilitate the payment from partnership assets of the deceased
partner’s equity, some companies obtain life insurance policies on
BYP 12-3 COMMUNICATION ACTIVITY
To: Ronald Hrabik
Meg Percival
From: Your Accountant
Subject: Partnership Agreement for Pasta Shop
There are many important issues that should be included in your partnership
agreement. Prior to our meeting next Tuesday, in my office, it would be helpful
for you to consider the following matters.
1. Facts about the business; i.e., name, location, purpose, and date of
inception.
2. Facts about the partners; i.e., the name and address of each partner,
the beginning capital contribution of each partner, and the rights and
duties of partners with respect to: (a) making business decisions, (b) active
participation in the partnership (full/part-time), and (c) allowances for
vacations and sick leave.
BYP 12-3 (Continued)
5. Procedures for submitting disputes to arbitration. Inevitably, disagreements
will occur between partners. The partnership contract should provide a
framework for resolving them. You may want to include some or all of the
outside parties mentioned above in an arbitration committee.
7. Rights and duties of surviving partners. The death of a partner is often a
traumatic experience. Thus, it is advisable that the partnership agreement
specify the responsibilities of the surviving partners, assuming the
business is continued, or if the business is terminated. Also, procedures
should be included for determining the deceased partner’s equity in the
firm. The procedures might include an audit of the financial statements
and a revaluation of assets by an independent appraisal firm.
BYP 12-4 ETHICS CASE
(a) The stakeholders in this situation are Alexandra and Kellie.
(b) The consequences of Alexandra’s actions are that they cause significant
differences in the time worked between the partners and in the amount
of drawings made by each partner. Sooner or later, Kellie is going to
become annoyed with Alexandra’s actions and this could cause
friction between the partners.
(c) For the differences in time worked, two changes in the partnership
agreement should be considered. First, Kellie could be given a higher
salary allowance than Alexandra. Second, because Kellie is
contributing more to net income than Alexandra, she could be given a
higher percentage of net income after deducting salary allowances.
BYP 12-5 ALL ABOUT YOU
Given that the students may come up with variety of answers that are
correct, there is no single correct solution to this problem. You may wish to
have a show of hands on each question to see whether any consensus has
developed on any of the questions.
