17
Partnerships
ANSWERS TO DISCUSSION QUESTIONS AND
CRITICAL THINKING/ETHICAL CASE
2. Characteristics of a partnership are unlimited liability, co-ownership of
property, limited life, mutual agency, and taxation.
4. A new partnership could be formed, and the business would continue to
operate without any interruptions.
6. Salary and interest allowance are mechanisms to divide up earnings. They
are not expenses.
8. Agree. The statement of partners’ capital is a supporting statement that is
9. The end result of this transaction is to transfer the capital account of one
partner to another partner. The difference between the selling price and the
10. Partners may require an incoming partner to pay an additional amount or
bonus.
12. A partner may take more than book equity because the assets and liabilities
are on the books at book value instead of market value.
13. A. Assets are converted into cash with any loss or gain recorded.
B. Any loss or gain is divided up between the partners based upon profit or
14. The question in this case is whether Alvin is obligated to perform the terms of
the contract. The important point is that a partnership exists. Thus, if one
SOLUTIONS TO CONCEPT CHECKS
Date Account Dr. Cr.
1.
Dec. 1 Cash
6,900
6,900
2.
Dec. 31
Income Summary
90,000
3.
Dec. 31
Income Summary
90,000
4.
Smith
Stapleson
Menard
Total
=
5.
by $2,950. Calculated by ($14,250 – $23,100) / 3.
The additional income to each partner is $22,300. Calculated by ($90,000 –
CONCEPT CHECKS (CONTINUED)
8.
Capital balance of each
partner
/ Total capital
= Profit/loss ratio
of each partner
Billy Bliss
$200
/ $1,900
= 2/19
James
The profit and loss ratio is 2:9:8.
Account Dr. Cr.
9.
Cash
22,500
Other Assets
18,500
Loss or Gain from Realization
SOLUTIONS TO SET A EXERCISES
17A–1.
May
1
Cash
40
0
0
0
00
0
0
0
1
Cash
28
0
0
0
00
Land
29
5
0
0
00
0
0
0
5
0
0
17A–2.
Dec.
Income Summary
17
0
0
0
9
3
0
5
0
7
0
17A-3.
July
31
J. Eagleson, Capital ($5,700 x 2/3)
3
8
0
0
00
1
9
0
0
5
7
0
0
9
0
0
17A-4.
8
E. Rackhaus, Capital
69
0
0
0
0
0
0
17A-5.
Sabin will receive $32,000.
SOLUTIONS TO SET B EXERCISES
17B–1.
May
1
Cash
39
0
0
0
00
Ed Hobbs, Capital
39
0
0
0
00
1
Cash
30
0
0
0
00
Land
30
5
0
0
00
Notes Payable
32
0
0
0
00
Carrie Lewis, Capital
5
0
0
00
17B–2.
Dec.
31
Income Summary
14
0
0
0
00
A. Larsen, Capital
3
1
5
00
B. Samec, Capital
3
6
8
5
00
17B–3.
July
31
J. Eaglen, Capital
4
0
0
0
00
2
0
0
0
00
6
0
0
0
00
July
31
T. DaVeiga, Capital
11
1
0
0
00
1
0
0
00
17B–4.
Apr.
8
E. Rabel, Capital
68
0
0
0
00
P. Solvay, Capital
0
0
0
17B–5.
Sullivan will receive $28,500.
SOLUTIONS TO SET A PROBLEMS
PROBLEM 17A-1
Katie
Leo
Totals
(a)
Situation 1
$4
2
0
0
$4
2
0
0
$8
4
0
0
Situation 2
$6
3
0
0
$2
1
0
0
$8
4
0
0
Salary Allowance
8
0
0
$2
4
2
0
2
2
0
Interest Allowance
6
0
0
2
0
0
8
0
0
3
2
6
Remaining Income (Deficit) to be distributed
1
1
9
0
1
1
9
0
2
3
8
0
$3
4
0
0
$2
6
2
0
6
0
2
0
4
2
Situation 3
9
PROBLEM 17A-2
Date
Account Titles and Description
PR
Dr.
Cr.
Sit.
1
Whitney Allen, Capital
3
5
0
00
Jack Worth, Capital
3
5
0
00
Sit.
2
Cash
1
0
5
0
00
Jack Worth, Capital
1
0
5
0
00
Sit.
3
Cash
3
3
0
0
00
Bob Miller, Capital
7
5
0
00
Whitney Allen, Capital
7
5
0
00
Jack Worth, Capital
1
8
0
0
00
Sit.
4
Cash
7
5
0
00
Bob Miller, Capital
1
0
0
00
Whitney Allen, Capital
1
0
0
00
Jack Worth, Capital
9
5
0
00
PROBLEM 17A-3 GENERAL JOURNAL
Date
Account Titles and Description
PR
Dr.
Cr.
Sit.
1
Verlander, Capital
5
3
0
0
00
Jennings, Capital
5
3
0
0
00
Sit.
2
Lambert, Capital
4
0
0
00
Ray, Capital
4
0
0
00
Verlander, Capital
2
0
0
00
Merchandise Inventory
1
0
0
0
00
Cash
5
1
0
0
00
Sit.
3
Verlander, Capital
5
3
0
0
00
Cash
3
8
0
0
00
Lambert, Capital
7
5
0
00
Ray, Capital
7
5
0
00
Sit.
4
Lambert, Capital
1
8
5
0
00
Ray, Capital
1
8
5
0
00
Verlander, Capital
3
7
0
0
00
9
0
0
0
00
9
0
0
0
00
PROBLEM 17A-4
JACKSON, RACKLEY, AND SUTTER
GENERAL JOURNAL
PAGE 13
Date
Account Titles and Description
PR
Dr.
Cr.
Sit.
1
Feb.
1
Cash
33
0
0
0
00
Other Assets
6
0
0
00
Loss or Gain from Realization
4
0
0
00
1
Loss or Gain from Realization
17
4
0
0
00
A. Jackson, Capital
8
7
0
0
00
C. Rackley, Capital
5
8
0
0
00
2
9
0
0
00
Liabilities
5
7
0
0
00
Cash
5
7
0
0
00
A. Jackson, Capital
20
3
0
0
00
C. Rackley, Capital
23
7
0
0
00
4
9
0
0
00
Cash
9
0
0
00
Sit.
2
Feb.
1
Cash
6
6
0
0
00
Loss or Gain from Realization
9
0
0
0
00
Other Assets
6
0
0
00
1
A. Jackson, Capital
4
5
0
0
00
C. Rackley, Capital
3
0
0
0
00
1
5
0
0
00
9
0
0
0
00
PROBLEM 17A-4 (CONCLUDED)
JACKSON, RACKLEY, AND SUTTER
GENERAL JOURNAL
PAGE 14
Date
Account Titles and Description
PR
Dr.
Cr.
Feb.
15
Liabilities
5
7
0
0
00
Cash
5
7
0
0
00
15
A. Jackson, Capital
7
1
0
0
00
C. Rackley, Capital
14
9
0
0
00
5
0
0
00
22
5
0
0
00
Sit.
3
Feb.
1
Cash
1
8
0
0
00
Loss or Gain from Realization
13
8
0
0
00
Other Assets
15
6
0
0
00
1
A. Jackson, Capital
6
9
0
0
00
C. Rackley, Capital
4
6
0
0
00
2
3
0
0
00
Loss or Gain from Realization
13
8
0
0
00
1
A. Jackson, Capital
1
8
0
00
C. Rackley, Capital
1
2
0
00
3
0
0
00
15
Liabilities
5
7
0
0
00
Cash
5
7
0
0
00
15
A. Jackson, Capital
4
5
2
0
00
C. Rackley, Capital
13
1
8
0
00
Cash
7
0
0
00
SOLUTIONS TO SET B PROBLEMS
PROBLEM 17B-1
Susan
Randy
Totals
(a)
Situation 1
$4
3
0
0
$4
3
0
0
$8
6
0
0
Situation 2
$6
4
5
0
$2
1
5
0
$8
6
0
0
Situation 3
8
6
0
$2
4
7
0
3
3
0
6
0
2
0
8
8
0
1
9
5
1
1
5
2
3
9
0
(b)
$3
2
0
$2
6
0
6
2
1
0
1
5
$1
5
5
4
0
0
0
PROBLEM 17B-2
Date
Account Titles and Description
PR
Dr.
Cr.
Sit.
1
Whitney Benson, Capital
5
0
0
00
Jack Tilton, Capital
5
0
0
00
Sit.
2
Cash
1
0
5
0
00
Jack Tilton, Capital
1
0
5
0
00
Sit.
3
Cash
1
8
0
0
00
Bob Miller, Capital
2
5
0
00
Whitney Benson, Capital
2
5
0
00
Jack Tilton, Capital
1
3
0
0
00
Sit.
4
Cash
6
6
0
00
Bob Miller, Capital
1
3
0
00
Whitney Benson, Capital
1
3
0
00
9
2
0
00
PROBLEM 17B-3
GENERAL JOURNAL
Date
Account Titles and Description
PR
Dr.
Cr.
Sit.
1
Valverde, Capital
5
4
0
0
00
Jimenez, Capital
5
4
0
0
00
Sit.
2
Lane, Capital
6
8
0
00
Ramiez, Capital
6
8
0
00
Valverde, Capital
3
4
0
00
Merchandise Inventory
1
7
0
0
00
Valverde, Capital
5
0
6
0
00
Cash
5
0
6
0
00
Sit.
3
Valverde, Capital
5
4
0
0
00
Cash
3
9
0
0
00
Lane, Capital
7
5
0
00
Ramiez, Capital
7
5
0
00
Sit.
4
Lane, Capital
1
7
5
0
00
Ramiez, Capital
1
7
5
0
00
Valverde, Capital
3
5
0
0
00
Valverde, Capital
8
9
0
0
00
8
9
0
0
00
PROBLEM 17B-4
JONES, RAINS, AND SUSSMAN
GENERAL JOURNAL
PAGE 13
Date
Account Titles and Description
PR
Dr.
Cr.
Sit.
1
1
Cash
33
3
0
0
00
Other Assets
7
0
0
00
Loss or Gain from Realization
6
0
0
00
1
Loss or Gain from Realization
18
6
0
0
00
A. Jones, Capital
9
3
0
0
00
C. Rains, Capital
6
2
0
0
00
3
1
0
0
00
15
Liabilities
6
0
5
0
00
Cash
6
0
5
0
00
15
A. Jones, Capital
20
4
0
0
00
C. Rains, Capital
24
2
0
0
00
4
8
5
0
00
Cash
4
5
0
00
Sit.
2
1
Cash
6
6
0
0
00
Loss or Gain from Realization
8
1
0
0
00
Other Assets
7
0
0
00
1
A. Jones, Capital
4
0
5
0
00
C. Rains, Capital
2
7
0
0
00
1
3
5
0
00
Loss or Gain from Realization
8
1
0
0
00
PROBLEM 17B-4 (CONCLUDED)
JONES, RAINS, AND SUSSMAN
GENERAL JOURNAL
PAGE 14
Date
Account Titles and Description
PR
Dr.
Cr.
Feb.
15
Liabilities
6
0
5
0
00
Cash
0
5
0
00
15
A. Jones Capital
7
0
5
0
00
C. Rains, Capital
15
3
0
0
00
4
0
0
00
Cash
22
7
5
0
00
Sit.
3
Feb.
1
Cash
2
1
0
0
00
Loss or Gain from Realization
12
6
0
0
00
Other Assets
14
7
0
0
00
1
A. Jones, Capital
6
3
0
0
00
C. Rains, Capital
4
2
0
0
00
2
1
0
0
00
Loss or Gain from Realization
12
6
0
0
00
Feb.
1
A. Jones, Capital
2
1
0
00
C. Rains, Capital
1
4
0
00
3
5
0
00
15
Liabilities
6
0
5
0
00
Cash
5
0
00
15
A. Jones, Capital
4
5
9
0
00
C. Rains, Capital
13
6
6
0
Cash
18
2
5
0
00
SOLUTION TO FINANCIAL REPORT PROBLEM: READING AMAZON’S
ANNUAL REPORT
Benefits of being a corporation rather than a partnership include: Limited Liability,