ACCOUNTING-The partnership agreement of Jones, King,

(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.

 

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