16

E 16-19 ~utnl8fship income allocation-Salary allowance and interest

The partnership agreement of Kray, Lam, and Mann provides for the division of net income as follows: 1. Lam, who manages the partnership, is to receive a salary of $11 ,000 per year. 2. Each partner is to be allowed interest at 10% on beginning capital. 3. Remaining profits are to be divided equally. During 2011, Kray invested an additional $4,000 in the partnership. Lam withdrew $5,000, and Mann withdrew $4,000. No other investments or withdrawals were made during 2011. On January 1, 2011, the capital balances were Kray,$65,000; Lam, $75,000; and Mann, $70,000. Total capital at year end was $252,000.
R E QUI RED: Prepare a statement of partners' capital for the year ended December 31, 20 11.

R E QUI RED:

Prepare a sl

P 16-2

Recording new part

The partnership of Marti and fair value and the pr

S
Recor
REQUIRED

Cash Accounts reo Inventories Plant assetsAccounts pal Mortin capiti Oscar capital

9 new partner Investment

After operating as partners for several years, Gro and Ham decided to sell one-half of each of their partnership interests to lot for a total of $70,000, paid directly to Gro and Ham. At the time of lot's admittance to the partnership, Gro and Ham had capital balances of $45,000 and $65,000, respectively, and shared profits 45 percent to Gro and 55 percent to Ham.

1. Calculate the capital balances of each of the partners immediately after lot is admitted as a partner assuming that the assets are not revalued, and prepare a second calculation of the capital balances assuming that the assets are revalued at the time lot is admitted. 2. In designing a new partnership agreement, how should profits and losses be divided? 3. If a new partnership agreement is not established, how will profits and losses be divided?

Martin and Oscar agree $95,000 cash and a build a fair value of $120,000. REQUIRED
1. Prepare a balance shee admission of Trent, as 2. Prepare a balance shee sion of Trent, assuming

E 16-21

Partnershipretirement-Various situations
The Cas, Don, and Ear partnership balance sheet and profit and loss percentages at June 30, 2011, are summarized as follows:
Assets $500,000 Cas capital (30%) Don capital (30%) Ear capital (40%) $140,000 175,000 185,000 $500,000

P 16-3

Partnership income

$500,000

Ashe and Barbour are p respectively. The partuei on beginning capital bail percent bonus of partneq ing income is dividede~

On July 1, 2011, the partners agree that Cas is to retire immediately and receive $161,000 for her partnership interest.
R EQUI RED: Prepare journal entries to illustrate three possible methods of accounting for the retirement of Cas.

R E QUI RED: Prepare an for 2011 should be divided.

P 16-4
I

Pa

Iplncome

P 16-1

The partnership agreem follows:

Partnership income allocation-Statement

of partnership capital

1. Alex is to receivea s

Ellen, Fargo, and Gary are partners who share profits and losses 20 percent, 20 percent, and 60 percent, respectively, after Ellen and Fargo each receive a $12,000 salary allowance. Capital balances on January 1,2011, are as follows: Ellen (20%) Fargo (20%) Gary (60%) $ 69,000 85,500 245,500

2. Partners are to recei computing these aver 3. Remaining profits ar

During 2011, Gary invested an additional $20,000 in the partnership, and Ellen and Fargo each withdrew $12,000, equal to their salary allowances as provided by the profit and loss sharing agreement. The partnership net assets at December 31,2011, were $481,000.

Alex had a capitalb. 1, 20 I 1. Carl's capital b $30,000 on September I $10,000 on July 1 but in The partnership has the net loss as follows: $

Partnerships-Formation,

Operations, and Changes in Ownership Intere s

REQUIRE D: Prepare a statement of partnership capital for the year ended December 31, 2011.
as follows:

P162

Recording partner investment-Revaluation new

5,000, and Mann withdrew 1, the capital balances were

and nonrevaluation cases

The artnershipof Mortin and Oscar is being dissolved, and the assets and equities at book value p andairvalue and the profit and loss sharing ratios at January 1, 2011, are as follows: f
Book Value Fair Value $ 20,000 100,000 200,000 120,000 $440,000 $ 50,000

r 31,2011.

Cash Accounts receivable-net Inventories Plant assets-net Accounts payable Mortin capital (50%) Oscar capital (50%)

$ 20,000 100,000 50,000 100,000 $270,000 $ 50,000 120,000 100,000 $270,000

f their partnership interests of $45,000 and $65,000,

itted as a partner assum1balances assuming that

~jortinnd Oscar agree to admit Trent into the partnership for a one-third interest. Trent invests a 95,000ash and a building to be used in the business with a book value to Trent of $100,000 and c afairvalueof $120,000. REQUIRED

divided?

1.Prepare balance sheet for the Mortin, Oscar, and Trent partnership on January 2, 2011, just after the a admission f Trent, assuming that the assets are revalued and goodwill is recognized. o 2.Prepare balance sheet for the Mortin, Oscar, and Trent partnership on January 2, 20 II, after the admisa sion Trent, assuming that the assets are not revalued. of

0, 2011, are summarized

P163

Partnership income allocation

Ashe nd Barbour are partners with capital balances on January 1,2011, of $40,000 and $50,000, a respectively. The partnership agreement provides that each partner is allowed 10 percent interest onbeginningcapital balances; that Ashe receives a salary allowance of $12,000 per year and a 20 percent bonus of partnership income after interest, salary allowance, and bonus; and that remaining incomeis divided equally. REQU IRE D: Prepare an income distribution schedule to show how the $105,000 partnership net income for 01 shouldbe divided. 2 I

1,000 for her partnership

or the retirement of Cas.

P16.4~

Mnerslli'p Income allocatlon-Complex,

Thepartnership agreement follows: nt, 20 percent, and allowance. Capital

net loss

of Alex, Carl, and Erika provides that profits are to be divided as

1.Alexis to receive a salary allowance of $10,000 for managing the partnership business. 2.Partners are to receive 10% interest on average capital balances. Drawings are excluded from computing these averages. 3.Remaining profits are to be divided 30%, 30%, and 40% to Alex, Carl, and Erika, respectively. Alex had a capital balance of $60,000 at January 1,2011, and had drawings of $8,000 on July 1,2011.Carl's capital balance on January 1,2011, was $90,000, and he invested an additional $30,000 September 1,2011. Erika's beginning capital balance was $110,000, and she withdrew on SIO,OOO July 1 but invested an additional $20,000 on October 1, 2011. on The partnership has a net loss of $12,000 during 2011, and the accountant in charge allocated thenet loss as follows: $200 profit to Alex, $4,800 loss to Carl, and $7,400 loss to Erika.

nd Ellen and Fargo ofit and loss sharing

ER 16

REQUIRED
1. A schedule to show the correct allocation of the partnership net loss for 20 II 2. A statement of partnership capital for the year ended December 31, 20 II 3. Journal entries to correct the books of the partnership at December 31, 2011, assuming that all closing entries for the year have been recorded.

REQUIRED
1. Calculate the balances 2. Calculate the balances the corrections that ms 3. Give the journal entry

~16-5
Partnership income allocation-Profit sharing based on beginning, ending, and average capital balances
A summary of changes in the capital accounts of the Katie, Lynda, and Molly partnership before closing partnership net income to the capital accounts, is as follows: for 2011,

P 16-7 Recording new pari

The partnership value of AM and fair value just

Katie Capital Balance January 1,2011 Investment April I Withdrawal May I Withdrawal July I Withdrawal September I $80,000 20,000 (10,000) $90,000

Lynda Capital $80,000 (15,000)

Molly Capital $90,000

Total Capital $250,000 20,000 (15,000) (10,000) (30,000) $215,000

Assets Cash Accounts r Inventories Plant assetsEquities Accounts pa 15% note p Addie capi Bal capital

$65,000

R E QUI RED:

Determine the allocation of the 20 II net income to the partners under each of the following sets of independent assumptions: 1. Partnership net income is $60,000, and profit is divided on the basis of average capital balances during the year. 2. Partnership net income is $50,000, Katie gets a bonus of 10% of income for managing the business, and the remaining profits are divided on the basis of beginning capital balances. 3. Partnership net loss is $35,000, Molly receives a $12,000 salary, each partner is allowed 10% interest on beginning capital balances, and the remaining profits are divided equally.

On January 2, 201 for a 40 percent interest

REQUIRED
1. Prepare journal entrie assuming that assets (I 2. Prepare a balance sh admission of Cathy.

P 16-6 Partner income allocation-Correction

The partnership ners contributing as follows: cash of $30,000. Reported

of error
on January 2, 2011, with each of the partand additional investments were profits, withdrawals,

P 16-8 Recording new pal1

The capital accounts 0 profit and loss sharing I

of Jones, Keller, and Glade was created

Reported 2011 2012 2013

Net Income

Withdrawals $4,000 5,000 8,000 3,000 2,000 4,000 Keller Jones Glade Keller Glade Keller

Additional

Investments The partners agree

$19,000 22,000 29,000

$5,000 Glade 5,000 Jones 6,000 Glade

R E QUI RED:
the partners' assumptions:

Prepare capital bala

1. Carrie sells half of he partnership. 10 percent interest on the

The partnership

agreement

provides

that partners

are to be allowed

2. Darling invests $75, and partnership assets

beginning-of-the-year capital balances, that Jones is to receive a $7,000 salary allowance, and that remaining profits are to be divided equally. After the books were closed on December 31, 2013, it was discovered that depreciation had been understated by $2,000 each year and that the inventory taken at December 31, 2013, was understated by $8,000.

3. Darling invests $80, ship assets are revalue

4. Darling invests $90,~ ship assets are not rev