Problem 14-2, Concluded
(4) The capital of the original partnership plus the contribution of the new partner would total
(5) The contribution of $66,000 represents a 30% interest in a partnership with a total value of
$220,000. Therefore, the value traceable to the original partnership must be $154,000
(6) After the contribution of $70,000 the total capital of the new partnership would be $185,000
(7) The $25,000 understatement in value of the recognized assets is traceable to the original
partners and total partnership capital would increase to $140,000 ($115,000 plus $25,000).
Dividing the $140,000 by 70% (the original partners’ interest in the new partnership) would
(8) The $25,000 understatement in value of the recognized assets is traceable to the original
partners and total partnership capital would increase to $140,000 ($115,000 plus $25,000).
(9) Adjusting the partnership for the $30,000 understatement in value would increase B’s capi-
tal to $39,000 ($30,000 + 30% times $30,000). If B is paid $51,000 for their interest, this
PROBLEM 14-3
(1) Grossman Casper Ziegler Total
(2) Grossman Casper Ziegler Total
Pre-sale capital balance …………………… $125,000 $200,000 $ 150,000 $ 475,000
(3) Grossman Casper Ziegler Total
Pre-sale capital balance …………………… $125,000 $200,000 $ 150,000 $ 475,000
(4) Grossman Casper Ziegler Total
Pre-sale capital balance …………………… $125,000 $200,000 $ 150,000 $ 475,000
(5) Grossman Casper Ziegler Total
Pre-sale capital balance …………………… $125,000 $200,000 $ 150,000 $ 475,000
(6) Grossman Casper Ziegler Total
Pre-sale capital balance …………………… $125,000 $200,000 $ 150,000 $ 475,000
Recognize all changes in the
PROBLEM 14-4
(1) Capital Balances
Davis
Murray Clay Rayburn Total
Balances as of
December 31, 2013 ……………. $ 50,000 $ 80,000 $ 70,000
Distribution of Clay’s 2013 bonus
(see Schedule A) ……………….. (36,000)
Admission of Rayburn (see
Schedule B) ………………………. (3,300) (3,300) (3,300) $ 68,900
Distribution of Clay’s 2014 bonus
(see Schedule A) ……………….. (6,000)
Distribution of 2014 other income
(see Schedule A; 80% ×
(see Schedule A) ……………….. 0 0 0 0
Allocation of 2016 income* (see
Schedule A) ………………………. 0 40,948 40,948 28,104
Balances as of June 30, 2016 …… $ 0 $ 135,348 $ 74,348 $104,404 314,100
*Not yet distributed
14–19 Ch. 14—Problems
Problem 14-4, Continued
Schedule A
Allocation of Profits and Losses
Cumulative
2013 Income Davis Murray Clay Rayburn Total
Profit and loss percentages … 33.3% 33.3% 33.3%
Salaries …………………………… $100,000 $100,000 $ 70,000 $270,000
2014 Income
Salaries …………………………… $100,000 $100,000 $70,000 270,000
Bonus (see Note B) …………… 6,000 276,000
Remaining profits ……………… 8,000 8,000 8,000 300,000
Total ……………………………….. $108,000 $108,000 $84,000
2015 Income
Salaries …………………………… $50,000 $50,000 $35,000 $ 0 135,000
Interest ……………………………. 5,900 140,900
Bonus (see Note C) …………… 1,100 142,000
Remaining profits ……………… 0 0 0 142,000
Note B: Bonus = 20% (Net Income – Salaries)
Bonus = 20% ($300,000 – $270,000)
Bonus = 20% ($30,000)
Bonus = $6,000
Note C: Bonus = 20% (Net Income – Salaries)
Problem 14-4, Concluded
Schedule B
Changes in Partnership Interests
Admission of Rayburn:
Total capital of previous partners ………………………………………………….. $ 78,800
Investment of Rayburn ………………………………………………………………… 59,000
(2) Distribution of Available Cash on September 15, 2016
Cash
Liabilities Murray Clay Rayburn
Available cash (see Schedule C) …… $ 277,000
Payment of liabilities ……………………. (84,000) $84,000
Payment to partners (see Note D) …. (183,000) $112,908 $1,908 $68,184
Total ………………………………………….. $ 10,000 $84,000 $112,908 $1,908 $68,184
Schedule C
Partial Liquidation Schedule
Noncash Loan from Capital Balances
Cash
Assets Liabilities Murray Murray Clay Rayburn
Balances at June 30, 2016 ….. $ 15,000 $433,100 $84,000 $50,000 $135,348 $74,348 $104,404
August 1 sale of assets ………. 180,000 (220,000) (16,000) (16,000) (8,000)
PROBLEM 14-5
If the partnership is liquidated, Jacobs’ capital balance and resulting distribution will be as follows:
Noncash Combined Loan and Capital Balances
Cash
Assets Liabilities Jacobs Williams Harrington
Profit and loss percentages ……………….. 30% 30% 40%
Beginning balances …………………………… $ (15,000) $ 322,000 $ 160,000 $ 52,000 $ 65,000 $ 30,000
Discovery of liabilities ………………………… 12,000 (3,600) (3,600) (4,800)
Sale of assets ………………………………….. 232,000 (322,000) (27,000) (27,000) (36,000)
Payment of liabilities …………………………. (172,000) (172,000)
If the offer by Williams is accepted, the amount received by Jacobs will be determined as follows:
Noncash Combined Loan and Capital Balances
Cash
Assets Liabilities Jacobs Williams Harrington
Profit and loss percentages ……………….. 30% 30% 40%
Problem 14-5, Concluded
Payment due Jacobs:
Capital balance ………………………………………….. $ 31,000
Percent to be paid ………………………………………. 50%
Total payment ……………………………………………. $ 15,500
Less down payment ……………………………………. (3,100)
Remaining balance …………………………………….. $ 12,400
14–23 Ch. 14—Problems
PROBLEM 14-6
Capital Balances
Murphy
Reinartz Hepburn Pioso Total
Balance as of
December 31, 2015 ……….. $ 54,000 $ 76,000 $ — $ — $ 130,000
Year-end balance ………………. $ 176,850 $ 117,275 $ 75,875 $ 0 $ 370,000
2018 Beginning balance ……………… $ 176,850 $ 117,275 $ 75,875 $ — $ 370,000
Sale of interest to Reinartz ….. (176,850) 176,850 —
Allocation of profits
(see Note A) ………………….. — 100,000 100,000 200,000
Ending balance …………………. $ 0 $ 0 $112,500 $ 75,000 $ 187,500
Note A:
Cumulative
2016 Allocation Profit Murphy
Reinartz Total
Profit and loss percentages ……………………….. 40% 60%
Problem 14-6, Concluded
Cumulative
2017 Allocation Murphy Reinartz Hepburn Total
Profit and loss percentages .. 30% 45% 25%
Salary …………………………….. $ 80,000 $100,000 $70,000 $250,000
Partner Income Income Bonus
Murphy 20% $230,000 $46,000
2017 Bonus
Percent of
Partner Income Income Bonus
Note C: Admission of Hepburn: If Hepburn paid $70,000 for a 25% interest in capital, this
would suggest that the new partnership had a value of $280,000. This value exceeds
the capital of the old partnership ($160,000) plus the investment of the new partner
($70,000). Therefore, goodwill of $50,000 [$280,000 – ($160,000 + $70,000)] is tra-
ceable to the original partnership. The goodwill is allocated to the original partners per
their profit percentages.
Admission of Pioso: If Pioso paid $75,000 for a 40% interest in capital, this would
suggest that the new partnership had a value of $187,500. This value exceeds the
capital of the old partnership ($90,875) plus the investment of the new partner
PROBLEM 14-7
If the partnership were liquidated on March 31, 2016, Klaproth would receive $48,750, determined as
follows:
Noncash Partner’s Capital Balances
Event/Circumstance Cash Assets Liabilities Klaproth Stone Jackson
Profit and loss percentages ……. 35% 30% 35%
Beginning balances ………………. $ 120,000 $1,500,000 $1,400,000 $110,000 $ 20,000 $ 90,000
Subtotal ……………………………….. $ 77,500 $ — $ — $ 48,750 $ — $ 28,750
Final payment to partners ………. (77,500) — — (48,750) — (28,750)
Final balances ………………………. $ — $ — $ — $ — $ — $ —
If Klaproth continued in the partnership until March 31, 2018, he would receive draws of $20,000 and
a final payment of $117,040 (110% of final capital balance of $106,400) less an investment of
$50,000, determined as follows:
Noncash Partner’s Capital Balances
Event/Circumstance Cash Assets Liabilities Klaproth Stone Jackson
Profit and loss percentages ……. 35% 30% 35%
Beginning balances ………………. $120,000 $1,500,000 $1,400,000 $ 110,000 $ 20,000 $ 90,000
Allocation of 2016 net income
Allocation of 2017 net income
(see Note B) …………………….. — 200,000 56,900 62,200 80,900
Partnership draws …………………. (60,000) — (40,000) (20,000)
Subtotal ……………………………….. $ 60,000 $1,820,000 $1,400,000 $ 228,900 $ 78,200 $ 172,900
Adjustment of receivables and
Problem 14-7, Concluded
Note A:
Cumulative
Allocation of 2016 income: Klaproth Stone Jackson Total
Profit and loss percentages ……. 35% 30% 35%
Salary ………………………………….. $100,000 $130,000 $ 90,000 $320,000
Bonus as a percent of sales ……. 30,000 — 50,000 400,000
14–27 Ch. 14—Problems
PROBLEM 14-8
Noncash Combined Capital and Loans
Cash Assets Liabilities Partner A Partner B Partner C
Beginning balances …………………………. $ 12,000 $210,000 $100,000 $ 75,000 $ 67,000 $(20,000)
Month 1
Satisfaction of Partner B note payable .. (15,000) 5,000 (22,000) 2,000
Customer sale ………………………………… 16,000 (14,000) 1,000 600 400
Payment of liquidation expenses ………. (6,000) (3,000) (1,800) (1,200)
Balances………………………………………… $ 49,000 $ 28,000 $ 0 $ 67,000 $ 33,200 $(23,200)
Monthly safe payment (Schedule A) …. (45,000) (32,500) (12,500) —
Month 4
Sale of remaining assets ………………….. 7,000 (13,000) (3,000) $ (1,800) (1,200)
Payment of liquidation expenses ………. (4,500) (2,250) $ (1,350) $(900)
Balances………………………………………… $ 6,500 $ 0 $ 0 $ 5,375 $ 3,225 $ (2,100)
Partner B’s assumption of deficit ……….. (2,100) 2,100
Problem 14-8, Concluded
Schedule A
Schedule of Safe Payments
Partner A Partner B Partner C Total
Profit and loss percentages………………………….. 50% 30% 20% 100%
Safe payment …………………………………………….. $ 0 $ 4,000 $ 0 $ 4,000
Month 2
Combined capital and loan balances …………….. $ 67,000 $ 33,200 $(23,200) $ 77,000
Estimated liquidation expenses and/or
adjustment to minimum cash balance ………… (2,000) (1,200) (800) (4,000)
Maximum loss possible ……………………………….. (6,500) (3,900) (2,600) (13,000)
Balances……………………………………………………. $ 23,500 $ 6,900 $ (3,400) $ 27,000
Allocation of debit capital balances ……………….. (2,125) (1,275) 3,400 —
Safe payment …………………………………………….. $ 21,375 $ 5,625 $ 0 $ 27,000
Schedule B
PROBLEM 14-9
Other Partner’s Capital Balance
Cash
Assets Liabilities Adams Beyer Chenery
Profit and loss percentages ……………….. 30% 30% 40%
Beginning balances …………………………… $ 25,000 $ 240,000 $ 200,000 $ 50,000 $ (10,000) $ 25,000
June 30 sale of assets ………………………. 120,000 (160,000) (12,000) (12,000) (16,000)
Balances …………………………………………. $ 145,000 $ 80,000 $ 200,000 $ 38,000 $ (22,000) $ 9,000
Contribution of assets ……………………….. 6,000 6,000
Payment of liabilities …………………………. (131,000) (131,000)
Balances …………………………………………. $ 20,000 $ 80,000 $ 69,000 $ 38,000 $ (16,000) $ 9,000
Problem 14-9, Concluded
Allocation of Adams’ personal assets:
Personal liabilities …………………………………………………………… $22,500 60%
Unsatisfied partnership creditors ………………………………………. 15,000 40
Total claims against personal assets …………………………………. $37,500 100%