Partnership problems

| December 13, 2017

(1)
The partnership agreement of Jones, King,
and Lane provides for the annual allocation of the business’s profit or loss in
the following sequence:
• Jones, the managing partner, receives a
bonus equal to 20 percent of the business’s profit.
• Each partner receives 15 percent interest
on average capital investment.
• Any residual profit or loss is divided
equally.
The average capital investments for 2013
were as follows:
Jones . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . $100,000
King . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . 200,000
Lane . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . 300,000
How much of the $90,000 partnership profit
for 2013 should be assigned to each partner?
(2)
Gray, Stone, and Lawson open an accounting
practice on January 1, 2011, in San Diego, California, to be operated as a
partnership. Gray and Stone will serve as the senior partners because of their
years of experience. To establish the business, Gray, Stone, and Lawson
contribute cash and other properties valued at $210,000, $180,000, and $90,000,
respectively. Articles of partnership agreement are drawn up. It has the
following stipulations:
• Personal drawings are allowed annually up
to an amount equal to 10 percent of the beginning capital balance for the year.
• Profits and losses are allocated
according to the following plan:
(1) A salary allowance is credited to each
partner in an amount equal to $8 per billable hour worked by that individual
during the year.
(2) Interest is credited to the partners’
capital accounts at the rate of 12 percent of the average monthly balance for
the year (computed without regard for current income or drawings).
(3) An annual bonus is to be credited to
Gray and Stone. Each bonus is to be 10 percent of net income after subtracting
the bonus, the salary allowance, and the interest. Also included in the
agreement is the provision that the bonus cannot be a negative amount.
(4) Any remaining partnership profit or
loss is to be divided evenly among all partners. Because of monetary problems
encountered in getting the business started, Gray invests an additional $9,100
on May 1, 2011. On January 1, 2012, the partners allow Monet to buy into the partnership.
Monet contributes cash directly to the business in an amount equal to a 25
percent interest in the book value of the partnership property subsequent to
this contribution. The partnership agreement as to splitting profits and losses
is not altered upon Monet’s entrance into the firm; the general provisions
continue to be applicable.
The billable hours for the partners during
the first three years of operation follow:
2011 2012
2013
Gray . . . . . . . . . . . . . . 1,710 1,800 1,880
Stone . . . . . . . . . . . . . 1,440
1,500 1,620
Lawson . . . . . . . . . . .
1,300 1,380 1,310
Monet . . . . . . . . . . . .
–0– 1,190 1,580

The partnership reports net income for 2011
through 2013 as follows:
2011 . . . . . . . . . . . . . . . . . . . . . . $ 65,000
2012 . . . . . . . . . . . . . . . . . . . . . . (20,400)
2013 . . . . . . . . . . . . . . . . . . . . . . 152,800

Each partner withdraws the maximum
allowable amount each year.
a.Determine the allocation of income
for each of these three years (to the nearest dollar).
b.Prepare in appropriate form a
statement of partners’ capital for the year ending December 31,
2013.

(3)

A partnership of attorneys in the St. Louis, Missouri, area has the
following balance sheet accounts as of January 1, 2013:

Assets . . . . . . . . . . . . . . . . . $320,000 Liabilities
. . . . . . . . . . . . . . . . . $120,000
Athos, capital . . . . . . . . . . . . . 80,000
Porthos, capital . . . . . . . . .. . . 70,000
Aramis, capital . . . . . . . . . . .. . 50,000

According to the articles of partnership,
Athos is to receive an allocation of 50 percent of all partnership profits and
losses while Porthos receives 30 percent and Aramis, 20 percent. The book value
of each asset and liability should be considered an accurate representation of fair
value.
For each of the following independentsituations,
prepare the journal entry or entries to be recorded by the partnership. (Round
to nearest dollar.)
a.Porthos,
with permission of the other partners, decides to sell half of his partnership
interest to D’Artagnan for $50,000 in cash. No asset revaluation or goodwill is
to be recorded by the partnership.
b.All three
of the present partners agree to sell 10 percent of each partnership interest
to D’Artagnan for a total cash payment of $25,000. Each partner receives a
negotiated portion of this amount. Goodwill is recorded as a result of the
transaction.
c.D’Artagnan
is allowed to become a partner with a 10 percent ownership interest by
contributing $30,000 in cash directly into the business. The bonus method is
used to record this admission.
d.Use the
same facts as in requirement (c) except that the entrance into the
partnership is recorded by the goodwill method.
e.D’Artagnan
is allowed to become a partner with a 10 percent ownership interest by
contributing $12,222 in cash directly to the business. The goodwill method is
used to record this transaction.
f.Aramis
decides to retire and leave the partnership. An independent appraisal of the
business and its assets indicates a current fair value of $280,000. Goodwill is
to be recorded.
Aramis will then be given the exact amount
of cash that will close out his capital account.
(4)

The following balance sheet is for a local partnership in which the
partners have become very unhappy with each other.

Cash. . . . . . . . . . . . . . . . . . $ 40,000 Liabilities . . . . . . . . . . . . .
. . . . . . $ 30,000
Land. . . . . . . . . . . . . . . . . . 130,000 Adams, capital . . . . . . . . . . .
. . . 80,000
Building . . . . . . . . . . . . . . . 120,000 Baker, capital. . . . . . . . . . .
. . . . . 30,000
Carvil, capital . . . . . . . . .
. 60,000
Dobbs, capital . . . . . . . .
. 90,000
Total assets . . . . . . . . . . . $290,000 Total
liabilities and capital . . . . $290,000

To avoid more conflict, the partners have decided to cease
operations and sell all assets. Using this information, answer the following
questions. Each question should be viewed as an independentsituation
related to the partnership’s liquidation.

a.The $10,000 cash that exceeds the
partnership liabilities is to be disbursed immediately. If profits and losses
are allocated to Adams, Baker, Carvil, and Dobbs on a 2:3:3:2 basis, respectively,
how will the $10,000 be divided?
b.The $10,000 cash that exceeds the
partnership liabilities is to be disbursed immediately. If profits and losses
are allocated on a 2:2:3:3 basis, respectively, how will the $10,000 be divided?
c.The building is immediately sold for
$70,000 to give total cash of $110,000. The liabilities are then paid, leaving cash
balance of $80,000. This cash is to be distributed to the partners. How much of
this money will each partner receive if profits and losses are allocated to
Adams, Baker, Carvil, and Dobbs on a 1:3:3:3 basis, respectively?
d.Assume that profits and losses are
allocated to Adams, Baker, Carvil, and Dobbs on a 1:3:4:2 basis, respectively.
How much money must the firm receive from selling the land and building to
ensure that Carvil receives a portion?

(5)

March, April, and May have been in partnership for a number of
years. The partners allocate all profits and losses on a 2:3:1 basis,
respectively. Recently, each partner has become personally insolvent and, thus,
the partners have decided to liquidate the business in hopes of remedying their
personal financial problems. As of September 1, the partnership’s balance sheet
is as follows:

Cash. . . . . . . . . . . . . . . . . . $ 11,000 Liabilities . . . . . . . . . . . . .
. . . . . . $ 61,000
Accounts receivable . . . . . . 84,000 March, capital . . . . . . . . . . . . . . . 25,000
Inventory . . . . . . . . . . . . . . 74,000 April, capital . . . . . . . . . . . . . . . . 75,000
Land, building, and May,
capital . . . . . . . . . . . . . . . . . 46,000
Equipment (net) . . . . . . . . 38,000 Total liabilities and capital . . . . . $207,000
Total assets . . . . . . . . . . . $207,000

Prepare journal entries for the following transactions:
a.Sold all inventory for $56,000 cash.
b.Paid $7,500 in liquidation expenses.
c.Paid $40,000 of the partnership’s
liabilities.
d.Collected $45,000 of the accounts
receivable.
e.Distributed safe cash balances; the
partners anticipate no further liquidation expenses.
f.Sold remaining accounts receivable
for 30 percent of face value.
g.Sold land, building, and equipment
for $17,000.
h.Paid all remaining liabilities of the
partnership.
i.Distributed cash held by the business
to the partners.

(6)

The partnership of Frick, Wilson, and Clarke has elected to cease
all operations and liquidate its business property. A balance sheet drawn up at
this time shows the following account balances:

Cash. . . . . . . . . . . . . . . . . . $ 48,000 Liabilities . . . . . . . . . . . . .
. . . . . . $ 35,000
Noncash assets . . . . . . . . . . 177,000 Frick, capital (60%) . . . . . . . . . . . 101,000
Wilson, capital (20%) . . . . . 28,000
Clarke, capital (20%). . . . . . 61,000
Total assets . . . . . . . . . . . $225,000 Total
liabilities and capital . . . . $225,000

The following transactions occur in liquidating this business:
• Distributed safe capital balances immediately to the partners.
Liquidation expenses of $9,000 are estimated as a basis for this computation.
• Sold noncash assets with a book value of $80,000 for $48,000.
• Paid all liabilities.
• Distributed safe capital balances again.
• Sold remaining noncash assets for $44,000.
• Paid liquidation expenses of $7,000.
• Distributed remaining cash to the partners and closed the
financial records of the business permanently.

Produce a final schedule of liquidation for this partnership.

Order your essay today and save 30% with the discount code: ESSAYHELPOrder Now