P15.8 Comprehensive Partnership Problem
Brian Snow and Wendy Waite formed a partnership on July 1, 2007. Brian invested $20,000 cash, inventory valued at $15,000, and equipment valued at $67,000. Wendy invested $50,000 cash, and land valued at $120,000. The partnership assumed the $40,000 mortgage on the land.
On June 30, 2008, the partnership reported a net loss of $24,000. The partnership contract specified that income and losses were to be allocated by allowing 10% interest on the original capital investment, salaries of $15,000 to Brian and $20,000 to Wendy, and the remainder to be divided in the ratio of 40:60.
On July 1, 2008, Alan Young was admitted into the partnership with a $70,000 cash investment. Alan was given a 30% interest in the partnership because of his special skills. The partners elect to use the bonus method to record the admission. Any bonus should be divided in the old ratio of 40:60.
On June 30, 2009, the partnership reported a net income of $150,000. The new parntership contract stipulated that income and losses were to be divided in a fixed ratio of 20:50:30.
On July 2, 2009, Brian withdrew from the partnership for personal reasons. Brian was given $40,000 cash and a $60,000 note for his capital interest.
Required:
Prepare journal entries for each of the following events. Show computations.
1. Formation of the partnership.
2. Distribution of the net loss for the first year.
3. Admission of Alan into the partnership.
4. Distribution of the net income for the second year.
5. Withdrawal of Brian from the partnership.
Click here for the solution: Brian Snow and Wendy Waite formed a partnership on July 1, 2007
Showing posts with label partnership. Show all posts
Showing posts with label partnership. Show all posts
Sunday, September 27, 2015
The partnerships of Up & Down and Back & Forth started in business on July 1, 2005; each partnership owns one retail appliance store
The partnerships of Up & Down and Back & Forth started in business on July 1, 2005; each partnership owns one retail appliance store. It was agreed as of June 30, 2008, to combine the partnerships to form a new partnership to be known as Discount Partnership. Trial balances of the two original partnerships as of June 30, 2008 follow.
Up & Down Back & Forth
Trial Balance Trial Balance
June 30, 2008 June 30, 2008
Cash $ 25,000 $ 20,000
Accounts Receivable 90,000 140,000
Allowance for Doubtful Accounts $ 2,000 $ 6,000
Merchandise Inventory 180,000 115,000
Land 25,000 35,000
Buildings and Equipment 80,000 125,000
Allowance for Depreciation 24,000 61,000
Prepaid Expenses 6,000 8,000
Accounts Payable 42,000 54,000
Notes Payable 65,000 74,000
Accrued Expenses 34,000 44,000
Up, Capital 95,000
Down, Capital 144,000
Back, Capital 65,000
Forth, Capital 139,000
Totals $406,000 $406,000 $443,000 $443,000
The following additional information is available.
1. The profit- and loss-sharing ratios for the former partnerships were 40% to Up and 60% to Down; 30% to Back and 70% to Forth. The profit- and loss-sharing ratio for the new partnership will be Up, 20%; Down, 30%; Back, 15%; and Forth, 35%.
2. The opening capital ratios for the new partnership are to be the same as the profit- and loss-sharing ratios for the new partnership. The capital assigned to Up & Down will total $225,000. Any cash settlements among the partners arising from capital account adjustments will be a private matter and will not be recorded on the partnership books.
3. The partners agreed that the allowance for bad debts for the new partnership is to be 4% of the accounts receivable balances.
4. The opening inventory of the new partnership is to be valued by the FIFO method. The inventory of Up & Down was valued by the FIFO method and the Back & Forth inventory was valued by the LIFO method. The LIFO inventory represents 80% of its FIFO value.
5. Depreciation is to be computed by the double-declining balance method with a 10-year life for the depreciable assets. Depreciation for three years is to be accumulated in the opening balance of the Allowance for Depreciation account. Up & Down computed depreciation by the straight-line method, and Back & Forth used the double-declining balance method. All assets were obtained on July 1, 2005.
6. After the books were closed, an unrecorded merchandise purchase of $4,000 by Back & Forth was discovered. The merchandise had been sold by June 30, 2008.
7. The accounts of Up & Down include a vacation pay accrual. It was agreed that Back & Forth should make a similar accrual for their 10 employees, who will receive a two-week vacation of $200 per employee per week.
Required:
A. Prepare a worksheet to determine the opening balances of a new partnership after giving effect to the information above. Formal journal entries are not required. Supporting computations, including the computation of goodwill, should be in good form.
B. Prepare a schedule computing the cash to be exchanged between Up & Down and between Back & Forth, in settlement of the affairs of each original partnership.
Click here for the solution: The partnerships of Up & Down and Back & Forth started in business on July 1, 2005; each partnership owns one retail appliance store
Up & Down Back & Forth
Trial Balance Trial Balance
June 30, 2008 June 30, 2008
Cash $ 25,000 $ 20,000
Accounts Receivable 90,000 140,000
Allowance for Doubtful Accounts $ 2,000 $ 6,000
Merchandise Inventory 180,000 115,000
Land 25,000 35,000
Buildings and Equipment 80,000 125,000
Allowance for Depreciation 24,000 61,000
Prepaid Expenses 6,000 8,000
Accounts Payable 42,000 54,000
Notes Payable 65,000 74,000
Accrued Expenses 34,000 44,000
Up, Capital 95,000
Down, Capital 144,000
Back, Capital 65,000
Forth, Capital 139,000
Totals $406,000 $406,000 $443,000 $443,000
The following additional information is available.
1. The profit- and loss-sharing ratios for the former partnerships were 40% to Up and 60% to Down; 30% to Back and 70% to Forth. The profit- and loss-sharing ratio for the new partnership will be Up, 20%; Down, 30%; Back, 15%; and Forth, 35%.
2. The opening capital ratios for the new partnership are to be the same as the profit- and loss-sharing ratios for the new partnership. The capital assigned to Up & Down will total $225,000. Any cash settlements among the partners arising from capital account adjustments will be a private matter and will not be recorded on the partnership books.
3. The partners agreed that the allowance for bad debts for the new partnership is to be 4% of the accounts receivable balances.
4. The opening inventory of the new partnership is to be valued by the FIFO method. The inventory of Up & Down was valued by the FIFO method and the Back & Forth inventory was valued by the LIFO method. The LIFO inventory represents 80% of its FIFO value.
5. Depreciation is to be computed by the double-declining balance method with a 10-year life for the depreciable assets. Depreciation for three years is to be accumulated in the opening balance of the Allowance for Depreciation account. Up & Down computed depreciation by the straight-line method, and Back & Forth used the double-declining balance method. All assets were obtained on July 1, 2005.
6. After the books were closed, an unrecorded merchandise purchase of $4,000 by Back & Forth was discovered. The merchandise had been sold by June 30, 2008.
7. The accounts of Up & Down include a vacation pay accrual. It was agreed that Back & Forth should make a similar accrual for their 10 employees, who will receive a two-week vacation of $200 per employee per week.
Required:
A. Prepare a worksheet to determine the opening balances of a new partnership after giving effect to the information above. Formal journal entries are not required. Supporting computations, including the computation of goodwill, should be in good form.
B. Prepare a schedule computing the cash to be exchanged between Up & Down and between Back & Forth, in settlement of the affairs of each original partnership.
Click here for the solution: The partnerships of Up & Down and Back & Forth started in business on July 1, 2005; each partnership owns one retail appliance store
Tuesday, September 15, 2015
Desmond Drury and Ty Wilkins have decided to form a partnership
Desmond Drury and Ty Wilkins have decided to form a partnership. They
have agreed that Drury is to invest $20,000 and that Wilkins is to
invest $30,000. Drury is to devote full time to the business, and
Wilkins is to devote one-half time. The following plans for the division
of income are being considered:
a. Equal division.
b. In the ratio of original investments.
c. In the ratio of time devoted to the business.
d. Interest of 10% on original investments and the remainder in the ratio of 3:2.
e. Interest of 10% on original investments, salary allowances of $34,000 to Drury and $17,000 to Wilkins, and the remainder equally.
f. Plan (e), except that Drury is also to be allowed a bonus equal to 20% of the amount by which net income exceeds the salary allowances.
Instructions
For each plan, determine the division of the net income under each of the following assumptions: (1) net income of $150,000 and (2) net income of $66,000. Present the data in tabular form, using the following column headings:
$150,000 $66,000
Plan Drury Wilkins Drury Wilkins
Check: 1. f. Drury net income, $92,900
Click here for the solution: Desmond Drury and Ty Wilkins have decided to form a partnership
a. Equal division.
b. In the ratio of original investments.
c. In the ratio of time devoted to the business.
d. Interest of 10% on original investments and the remainder in the ratio of 3:2.
e. Interest of 10% on original investments, salary allowances of $34,000 to Drury and $17,000 to Wilkins, and the remainder equally.
f. Plan (e), except that Drury is also to be allowed a bonus equal to 20% of the amount by which net income exceeds the salary allowances.
Instructions
For each plan, determine the division of the net income under each of the following assumptions: (1) net income of $150,000 and (2) net income of $66,000. Present the data in tabular form, using the following column headings:
$150,000 $66,000
Plan Drury Wilkins Drury Wilkins
Check: 1. f. Drury net income, $92,900
Click here for the solution: Desmond Drury and Ty Wilkins have decided to form a partnership
Tuesday, September 8, 2015
Elise, CPA, owns a public accounting firm and wishes to establish a separate partnership to offer data processing services
MULTIPLE CHOICE
1. Elise, CPA, owns a public accounting firm and wishes to establish a separate partnership to offer data processing services to the public and other public accountants.
2. In some situations, the interpretations of the Rules of Conduct permit former partners to have relationships with a client of the firm without affecting the firm’s independence. Which of the following situations would not cause a loss of independence?
3. Anna Greer, a CPA in public practice, contacts Blake Sawyers, an employee of Jackson & Jackson, LLP, and makes him an offer of employment without first notifying Jackson & Jackson, LLP. According to the AICPA’s Code of Professional Conduct, Anna’s behavior:
4. When the question arises whether a CPA firm may do both bookkeeping and auditing services for the same public company client, the Interpretations of the AICPA’s Code of Professional Conduct:
5. A member in public practice may perform for a contingent fee any professional services for a client for whom the member or member’s firm performs:
6. “Independence” in auditing means:
7. Interpretations of the rules regarding independence allow an auditor to serve as:
8. Which of the following statements is true? The CPA firm will lose its independence if:
9. Which of the following statements is not true with respect to audit committees?
10. According to the Principles section of the Code of Professional Conduct, all members:
Click here for the solution: Elise, CPA, owns a public accounting firm and wishes to establish a separate partnership to offer data processing services
1. Elise, CPA, owns a public accounting firm and wishes to establish a separate partnership to offer data processing services to the public and other public accountants.
2. In some situations, the interpretations of the Rules of Conduct permit former partners to have relationships with a client of the firm without affecting the firm’s independence. Which of the following situations would not cause a loss of independence?
3. Anna Greer, a CPA in public practice, contacts Blake Sawyers, an employee of Jackson & Jackson, LLP, and makes him an offer of employment without first notifying Jackson & Jackson, LLP. According to the AICPA’s Code of Professional Conduct, Anna’s behavior:
4. When the question arises whether a CPA firm may do both bookkeeping and auditing services for the same public company client, the Interpretations of the AICPA’s Code of Professional Conduct:
5. A member in public practice may perform for a contingent fee any professional services for a client for whom the member or member’s firm performs:
6. “Independence” in auditing means:
7. Interpretations of the rules regarding independence allow an auditor to serve as:
8. Which of the following statements is true? The CPA firm will lose its independence if:
9. Which of the following statements is not true with respect to audit committees?
10. According to the Principles section of the Code of Professional Conduct, all members:
Click here for the solution: Elise, CPA, owns a public accounting firm and wishes to establish a separate partnership to offer data processing services
Tuesday, August 18, 2015
Denise contributes the following assets to a partnership in exchange for a 25% partnership interest
48. Denise contributes the following assets to a partnership in exchange for a 25% partnership interest:
FMV Basis
Cash $20,000 20,000
Office equipment 12,000 5,000
Auto 20,000 6,000
What is Denise’s beginning basis in her partnership interest?
Click here for the solution: Denise contributes the following assets to a partnership in exchange for a 25% partnership interest
FMV Basis
Cash $20,000 20,000
Office equipment 12,000 5,000
Auto 20,000 6,000
What is Denise’s beginning basis in her partnership interest?
Click here for the solution: Denise contributes the following assets to a partnership in exchange for a 25% partnership interest
On June 1 of the current year, Patti contributes equipment with a $45,000 basis and a $35,000 FMV in exchange for a partnership interest
49. On June 1 of the current year, Patti contributes equipment with a $45,000 basis and a $35,000 FMV in exchange for a partnership interest. She purchased the equipment three years ago.
a. What is Patti’s basis in her partnership interest?
b. What is Patti’s holding period of her partnership interest?
c. What is the basis of the equipment in the hands of the partnership?
d. What is the holding period of the equipment in the hands of the partnership?
e. How will the partnership depreciate the equipment in the year of contribution?
Click here for the solution: On June 1 of the current year, Patti contributes equipment with a $45,000 basis and a $35,000 FMV in exchange for a partnership interest
a. What is Patti’s basis in her partnership interest?
b. What is Patti’s holding period of her partnership interest?
c. What is the basis of the equipment in the hands of the partnership?
d. What is the holding period of the equipment in the hands of the partnership?
e. How will the partnership depreciate the equipment in the year of contribution?
Click here for the solution: On June 1 of the current year, Patti contributes equipment with a $45,000 basis and a $35,000 FMV in exchange for a partnership interest
Friday, July 31, 2015
Vincent is a 50% partner in the TAV Partnership
Vincent is a 50% partner in the TAV Partnership. He became a partner three years ago when he contributed land with a value of $60,000 and a basis of $30,000 (current value is $100,000). Tyler and Anita each contributed $30,000 cash for a 25% interest. Vincent’s basis in his partnership interest is currently $150,000; the other partners’ bases are each $75,000. The partnership has the following assets:
Basis FMV
Cash $200,000 200,000
Accounts receivable -0- 200,000
Marketable securities 70,000 100,000
Land 30,000 100,000
Total 300,000 600,000
In general terms, describe the tax result if TAV distributes a $50,000 interest in the land each to Tyler and Anita and $100,000 of accounts receivable to Vincent at the end of the current year.
Click here for the solution: Vincent is a 50% partner in the TAV Partnership
Basis FMV
Cash $200,000 200,000
Accounts receivable -0- 200,000
Marketable securities 70,000 100,000
Land 30,000 100,000
Total 300,000 600,000
In general terms, describe the tax result if TAV distributes a $50,000 interest in the land each to Tyler and Anita and $100,000 of accounts receivable to Vincent at the end of the current year.
Click here for the solution: Vincent is a 50% partner in the TAV Partnership
Use the assets and partners’ bases from Problem 28. Assume the partnership distributes all its assets in a liquidating distribution
Use the assets and partners’ bases from Problem 28. Assume the partnership distributes all its assets in a liquidating distribution. In deciding the allocation of assets, what issues should the partnership consider to minimize each partner’s taxable gains?
Click here for the solution: Use the assets and partners’ bases from Problem 28. Assume the partnership distributes all its assets in a liquidating distribution
Click here for the solution: Use the assets and partners’ bases from Problem 28. Assume the partnership distributes all its assets in a liquidating distribution
Tuesday, April 28, 2015
Continuing Cookie Chronicle (CCC1) Solution Natalie Koebel spent much of her childhood learning the art of cookie-making from her grandmother
Continuing Cookie Chronicle
CCC1 Natalie Koebel spent much of her childhood learning the art of cookie-making from her grandmother. They spent many happy hours mastering every type of cookie imaginable and later devised new recipes that were both healthy and delicious. Now at the start of her second year in college, Natalie is investigating possibilities for starting
her own business as part of the entrepreneurship program in which she is enrolled. A long-time friend insists that Natalie has to include cookies in her business plan. After a series of brainstorming sessions, Natalie settles on the idea of operating a cookie-making school. She will start on a part-time basis and offer her services in people’s homes. Now that she has started thinking about it, the possibilities seem endless. During the fall, she will concentrate on holiday cookies. She will offer group sessions (which will probably be more entertainment than education) and individual lessons.
Natalie also decides to include children in her target market. The first difficult decision is coming up with the perfect name for her business. She settles on “Cookie Creations,” and then moves on to more important issues.
Instructions
(a) What form of business organization—proprietorship, partnership, or corporation— do you recommend that Natalie use for her business? Discuss the benefits and weaknesses of each form that Natalie might consider.
(b) Will Natalie need accounting information? If yes, what information will she need and why? How often will she need this information?
(c) Identify specific asset, liability, revenue, and expense accounts that Cookie Creations will likely use to record its business transactions.
(d) Should Natalie open a separate bank account for the business? Why or why not?
(e) Natalie expects she will have to use her car to drive to people’s homes and to pick up supplies, but she also needs to use her car for personal reasons. She recalls from her first-year accounting course something about keeping business and personal assets separate. She wonders what she should do for accounting purposes. What do you recommend?
Click here for the solution: Continuing Cookie Chronicle (CCC1) Solution
CCC1 Natalie Koebel spent much of her childhood learning the art of cookie-making from her grandmother. They spent many happy hours mastering every type of cookie imaginable and later devised new recipes that were both healthy and delicious. Now at the start of her second year in college, Natalie is investigating possibilities for starting
her own business as part of the entrepreneurship program in which she is enrolled. A long-time friend insists that Natalie has to include cookies in her business plan. After a series of brainstorming sessions, Natalie settles on the idea of operating a cookie-making school. She will start on a part-time basis and offer her services in people’s homes. Now that she has started thinking about it, the possibilities seem endless. During the fall, she will concentrate on holiday cookies. She will offer group sessions (which will probably be more entertainment than education) and individual lessons.
Natalie also decides to include children in her target market. The first difficult decision is coming up with the perfect name for her business. She settles on “Cookie Creations,” and then moves on to more important issues.
Instructions
(a) What form of business organization—proprietorship, partnership, or corporation— do you recommend that Natalie use for her business? Discuss the benefits and weaknesses of each form that Natalie might consider.
(b) Will Natalie need accounting information? If yes, what information will she need and why? How often will she need this information?
(c) Identify specific asset, liability, revenue, and expense accounts that Cookie Creations will likely use to record its business transactions.
(d) Should Natalie open a separate bank account for the business? Why or why not?
(e) Natalie expects she will have to use her car to drive to people’s homes and to pick up supplies, but she also needs to use her car for personal reasons. She recalls from her first-year accounting course something about keeping business and personal assets separate. She wonders what she should do for accounting purposes. What do you recommend?
Click here for the solution: Continuing Cookie Chronicle (CCC1) Solution
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