Appendix D
Reporting and Analyzing Partnerships
QUESTIONS
1. Under the circumstances described, the death, bankruptcy, or legal inability of a
partner to execute a contract ends a partnership. In addition, if a partnership is
3. All partners in a general partnership have unlimited liability. A limited partnership
9. George’s claim is not valid unless the previously agreed upon method of sharing net
11. At all times in the accounting history of a partnership (or any organization), assets
QUICK STUDIES
Quick Study D-1 (10 minutes)
a. The partnership will need to pay because it is a merchandising firm.
b. A public accounting firm is not in the merchandising business.
Quick Study D-2 (10 minutes)
Quick Study D-3 (15 minutes)
Stolton
Bright
Total
Net income ………………………………………
52,000
Salary allowances
Stolton ………………………………………….
Balance of income …………………………..
17,000
Balance allocated equally
Stolton ………………………………………….
Balance of income …………………………..
Quick Study D-4 (10 minutes)
Quick Study D-5 (10 minutes)
40,000
Quick Study D-6 (10 minutes)
Choi, Capital ……………………………………………………………………
10,000
10,000
Quick Study D-7 (30 minutes)
1.
Field
Brown
Snow
Total
Initial investments …………..
$131,250
$165,000
$153,750
$450,000
Capital balances ……………..
$ 30,000
$ 18,750
$ 45,000
2. a)
May 31
Cash ………………………………………………………………..
3,750
May 31
Brown, Capital ………………………………………………….
3. a)
May 31
Brown, Capital ………………………………………………….
1,875
1,875
May 31
Brown, Capital ………………………………………………….
Quick Study D-8 (15 minutes)
Total partnership return on equity = Net Income/Average equity
Duley partner return on equity = Partner net income/Average partner equity
EXERCISES
Exercise D-1 (15 minutes)
Characteristic
General Partnerships
1.
Life
Limited
3.
Not separate from partners
4.
Tax status of income
Taxed only once
5.
Owners’ authority
Mutual agency
6.
Ease of formation
Requires only an agreement
Exercise D-2 (20 minutes)
a. Recommended Organization: Sharif, Henry, and Korb might first
consider organizing their business as a general partnership. However, a
problem for these new graduates is that they do not have funds and with
b. Recommended Organization: The two doctors should form a
partnership. A general partnership will have the disadvantage of
c. Recommended Organization: Munson should consider setting up a
limited partnership. Given his real estate expertise he can manage the
Exercise D-3 (25 minutes)
1.
Jan. 1
Cash ………………………………………………………………..
17,500
Equipment ……………………………………………………….
82,500
Jan. 1
Cash ………………………………………………………………..
31,250
Exercise D-4 (30 minutes)
Kramer
Knox
Total
Plan (1)
$160,000 x 1/2 …………………………..
$80,000
$80,000
$160,000
Plan (2)
($60,000/$140,000) x $160,000 …………………
$68,571
$ 68,571
$68,571
$160,000
Plan (3)
Net income …………………………………………….
$160,000
Salary allowances …………………………..
Total salary and interest …………………………
Balance of income …………………………..
Balance allocated equally
($56,000)/2 …………………………..…………………
28,000
Exercise D-5 (35 minutes)
Kramer
Knox
Total
1.
Net income …………………………………………….
$ 98,800
Salary allowances …………………………..
Total salaries and interest ……………………..
Balance of income …………………………..
Remainder equally
($5,200)/2 ……………………………………………….
Balance of income …………………………..
_______
Shares each partner …………………………..
2.
Net income …………………………………………….
$ (16,800)
Salary allowances …………………………..
Total salaries and interest ……………………..
Balance of income …………………………..
Remainder equally
$(120,800)/2 ……………………………………………
Balance of income …………………………..
_______
Exercise D-6 (25 minutes)
1a. 2015
Mar. 1
Cash ………………………………………………………………..
82,500
Land ………………………………………………………………..
60,000
Building …………………………………………………………..
Eckert, Capital …………………………………………….
Kelley, Capital …………………………………………….
1b. 2015
Oct. 20
Eckert, Withdrawals ………………………………………….
34,000
Kelley, Withdrawals …………………………………………..
20,000
Cash ……………………………………………………………
To record partners’ withdrawals.
1c. 2015
Dec. 31
Eckert, Capital ………………………………………………….
34,000
Kelley, Capital …………………………………………………..
20,000
Eckert, Withdrawals …………………………………….
Kelley, Withdrawals ……………………………………..
Dec. 31
Income Summary ……………………………………………..
90,000
Eckert, Capital …………………………………………….
Kelley, Capital ……………………………………………..
2.
Capital account balances
Eckert
Kelley
Initial investment …………………………..
$ 82,500
$ 67,500
Withdrawals ………………………………….
Share of income* …………………………..
*Supporting calculations
Eckert
Kelley
Total
Net income ……………………………………………………….
$90,000
Salary allowance
Total salary allowance …………………………..
Balance of income …………………………..
Total interest allowances…………………………..
Balance of income …………………………..
Balance allocated equally
Total allocated equally …………………………..
$ 0
Exercise D-7 (10 minutes)
Mandy, Capital ………………………………………………….
Exercise D-8 (25 minutes)
1.
Nov. 1
Cash …………………………………………………………………
90,000
2.
Nov. 1
Cash ………………………………………………………………..
120,000
3.
Nov. 1
Cash ………………………………………………………………..
80,000
Main, Capital …………………………………………………….
Exercise D-9 (15 minutes)
1.
Jan. 31
Tulip, Capital …………………………………………………….
60,000
2.
Jan. 31
Tulip, Capital …………………………………………………….
60,000
12,500
3.
Jan. 31
Tulip, Capital …………………………………………………….
60,000
Exercise D-10 (30 minutes)
a. Loss from selling assets
Total book value of assets ………………………………………
$126,000
Total liabilities (before liquidation)…………………………..
Cash proceeds from sale of assets ………………………….
* Alternative computation
1) $28,000 = $78,000 – Cash from asset sale
(This implies $50,000 cash from asset sale)
= $126,000 – $50,000 = $76,000
b. Loss allocation
Turner
Roth
Lowe
Total
Capital balances before
loss liquidation
$ 2,500
$ 14,000
$ 31,500
$ 48,000
Allocation of loss
(30,400)
Capital balances after loss …..
$(5,100)
Exercise D-11 (30 minutes)
a. Loss from selling assets
Total book value of assets ………………………………………
$126,000
Total liabilities before liquidation …………………………..
$78,000
Cash proceeds from sale of assets ………………………….
b. Loss and deficit allocation
Turner
Roth
Lowe
Total
Capital balances before loss
$ 2,500
$ 14,000
$ 31,500
$ 48,000
Allocation of loss
Exercise D-12 (20 minutes)
Rugged Sports Enterprises LP:
Return on equity: $467,681 / [($947,000 + $1,364,681)/2] = 40.5%
PROBLEM SET A
Problem D-1A (45 minutes)
Preliminary calculations
Plan (a) & Plan (c)
Percentages based on initial investments
Lyon = $63,000/$105,000 = 60%
Plan (b)
Percentages based on time
Lyon = 1.0/1.5 = 66 2/3%
Plan (c) & Plan (d)
Salary allowance
Watts = 10% x $42,000 = $ 4,200
Income (Loss)
Year 1
Sharing Plan
Calculations
Watts
Lyon
(a)
40% x $36,000 loss ……………………………………………
$(14,400)
60% x $36,000 loss ……………………………………………
$(21,600)
(b)
33 1/3% x $36,000 loss …………………………..
$(12,000)
66 2/3% x $36,000 loss …………………………..
$(24,000)
(c)
Salary allowance ………………………………………………
$ 72,000
40% x ($36,000 loss + $72,000 salary) ………………..
$(43,200)
60% x ($36,000 loss + $72,000 salary) ………………..
Totals ……………………………………………………….
$(43,200)
(d)
Salary allowance ………………………………………………
$ 72,000
Totals ……………………………………………………….
Problem D-1A (Concluded)
Income (Loss)
Year 2
Sharing Plan
Calculations
Watts
Lyon
(a)
40% x $90,000 income …………………………..
$36,000
60% x $90,000 income …………………………..
33 1/3% x $90,000 income …………………………..
$30,000
66 2/3% x $90,000 income …………………………..
$ 7,200
Totals ……………………………………………………….
$ 7,200
Salary allowance ………………………………………………
$ 4,200
Income (Loss)
Year 3
Sharing Plan
Calculations
Watts
Lyon
(a)
40% x $150,000 income …………………………………….
$60,000
60% x $150,000 income …………………………………….
33 1/3% x $150,000 income …………………………..
$50,000
66 2/3% x $150,000 income …………………………..
(c)
Salary allowance ………………………………………………
40% x ($150,000 income – $72,000 salary) ………….
$31,200
Totals ……………………………………………………….
$31,200
Salary allowance ………………………………………………
$ 4,200
Problem D-2A (50 minutes)
1.
Dec. 31
Income Summary ……………………………………………..
249,000
Kara Ries, Capital ……………………………………….
83,000
Tammy Bax, Capital ……………………………………
83,000
Joe Thomas, Capital ……………………………………
83,000
2.
Dec. 31
Income Summary ……………………………………………..
249,000
Kara Ries, Capital ……………………………………….
Tammy Bax, Capital ……………………………………
87,150
Joe Thomas, Capital ……………………………………
99,600
3.
Dec. 31
Income Summary ……………………………………………..
249,000
Kara Ries, Capital ……………………………………….
79,000
Tammy Bax, Capital ……………………………………
72,200
Joe Thomas, Capital ……………………………………
97,800
*Supporting calculations
Ries
Bax
Thomas
Total
Net income …………………………………………
$249,000
Ries …………………………………………………
Thomas …………………………………………..
$80,000
Total salaries ……………………………………..
Interest allowances
Bax (10% on $112,000) ……………………..
Bal. after interest and salaries ……………..
Total allocated equally ………………………..
15,000
Balance of income …………………………..
$ 0
Problem D-3A (40 minutes)
Part 1
Income (Loss)
Sharing Plan
Calculations
Bill
Bruce
Barb
Total
(a)
$450,000/3 ……………………………………………………….
$450,000
Total allocated ……………………………………………………….
$450,000
(c)
Net income ……………………………………………………….
$450,000
Salary allowances …………………………..
Balance of income …………………………..
Interest allowances
10% x $67,500 …………………………..
6,750
10% x $262,500 …………………………..
10% x $420,000 …………………………..
Total interest ……………………………………………………….
Bal. of income ……………………………………………………….
Balance allocated …………………………..
Balance of income …………………………..
Problem D-3A (Concluded)
Part 2
BBB PARTNERSHIP
Statement of Partners’ Equity
For Year Ended December 31
Bill
Bruce
Barb
Total
Beginning capital balances …………..
$ 0
$ 0
$ 0
$ 0
Plus
Investments by owners ………………
67,500
262,500
420,000
750,000
Net income
80,000
60,000
135,050
310,350
513,600
959,000
Part 3
Dec. 31
Income Summary ……………………………………………..
209,000
Bruce Beck, Capital …………………………………………..
Barb Beck, Capital …………………………………………….