Partnerships - Formation and Operations Part 4

Part 4 - Partnerships: Formation and Operations 74. Determine the amount of net income allocated to each partner for 2010. Distribution of income for 2010: 75. Determine the balance in both capital accounts at the end of 2010. Capital account balances at the end of 2010: 76. Determine the amount of net income allocated to each partner for 2011. Round all calculations to the nearest whole dollar. Distribution of income for 2011: 77. Determine the balance in both capital accounts at the end of 2011 to the nearest dollar. Capital account balances at the end of 2011: The ABCD Partnership has the following balance sheet at January 1, 2010, prior to the admission of new partner, Eden. 78. Eden contributes $49,000 into the partnership for a 25% interest. The four original partners share profits and losses equally. Using the bonus method, determine the balances for each of the five partners after Eden joins the partnership. Eden's contribution of $49,000 into the partnership, raises the total partnership net assets to $400,000. Eden's capital account is credited, by agreement, for 25% of the partnership's total tangible assets, or $100,000. The journal entry to record the admission of Eden is: The capital balances of each of the five partners after Eden's entry into the partnership are as follows: 79. Eden contributed $124,000 in cash to the business to receive a 20% interest in the partnership. Goodwill was to be recorded. The four original partners shared all profits and losses equally. After Eden made his investment, what were the individual capital balances? Eden's contribution of $124,000 to the partnership increases the partnership's net assets to $475,000. The implied value of the partnership is $620,000 ($124,000 20%). Goodwill of $145,000 ($620,000 - $475,000) resulted from this transaction. The first entry requires that the goodwill be allocated to each of the original four partners according to their profit and loss sharing percentages. As indicated in the problem, the four original partners share profits and losses equally. After allocating the goodwill to each of the original four partners, their partnership capital balances are as follows: The second step is to record Eden's cash contribution and to record Eden's capital account balance: 80. Eden acquired a 20% interest in the partnership by contributing a total of $71,500 directly to the other four partners. No goodwill is to be recorded. Profits and losses have previously been split according to the following percentages: Adams, 15%, Barnes, 35%, Cordas, 30%, and Davis, 20%. After Eden made his investment, what were the individual capital balances? The partnership's total net assets are still $351,000, because Eden's $71,500 went to the partners. Using the book value method, each of the original partners will give up 20% of their current capital balance to Eden. The journal entry is: The partners' balances following the admission of Eden are: 81. Eden acquired a 20% interest in the partnership by contributing a total of $71,500 directly to the other four partners. Goodwill is to be recorded. Profits and losses have previously been split according to the following percentages: Adams, 15%, Barnes, 35%, Cordas, 30%, and Davis, 20%. After Eden made his investment, what were the individual capital balances? Eden's contribution of $71,500 will go to the original four partners, not into the partnership. Therefore, the partnership's total net assets remain $351,000. The implied value of the partnership, based on Eden's contribution, is $357,500 ($71,500 20%). Goodwill arising out of this transaction is $6,500. First, the goodwill should be allocated to each of the original four partners: The adjusted balances for the four original partners, after allocating goodwill, are: The next step is to allocate 20% of each of the original partners' balances to Eden: The partners' capital balances after admitting Eden are: Assume the partnership of Dean, Hardin, and Roth has been in existence for a number of years. Dean decides to withdraw from the partnership when the partners' capital balances are as follows: An appraisal of the business and its property estimates the fair value to be $100,000. Dean has agreed to receive $64,000 in exchange for his partnership interest. 82. Prepare the journal entry for the payment to Dean in the dissolution of his partnership interest, assuming the bonus method is to be applied. 83. What are the remaining partners' capital balances after Dean's interest is dissolved, assuming the bonus method is applied? Hardin: $12,600 ($15,000 - $2,400) Roth: 23,400 ($25,000 - $1,600) Assume the partnership of Howell, Madrid, and Waldrop has been in existence for a number of years. Howell decides to withdraw from the partnership when the partners' capital balances are as follows: An appraisal of the business and its net assets estimates the fair value to be $154,000. Land with a book value of $20,000 has a fair value of $35,000. Howell has agreed to receive $84,000 in exchange for her partnership interest. 84. Prepare the journal entries for the dissolution of Howell's partnership interest, assuming the goodwill method is to be applied. 85. What are the remaining partners' capital balances after Howell's interest is dissolved, assuming the goodwill method is applied? Madrid: 33,000 ($15,000 + $18,000) Waldrop: 37,000 ($25,000 + $12,000) On January 1, 2011, Lamb and Mona LLP admitted Noris to a 20% interest in net assets for an investment of $50,000 cash. Prior to the admission of Noris, Lamb and Mona had net assets of $100,000 and an income-sharing ratio of 25% to Lamb and 75% to Mona. After the admission of Noris, the partnership contract included the following provisions: Salary of $40,000 a year to Noris. Remaining net income in ratio Lamb 20%, Mona 60%, Noris 20% During the fiscal year ended December 31, 2011, the partnership had income of $90,000 prior to recognition of salary to Noris. 86. Record the journal entry for the admission of Noris. Goodwill is not to be recorded. 87. Record the journal entry to allocate the salary of Noris. AACSB: Analytic AICPA FN: Measurement Bloom's: Application Difficulty: Easy Learning Objective: 09-05 Understand the impact that the allocation of partnership income has on the partners' individual capital balances. 88. Record the journal entry to record the remainder of net income to the capital accounts. 89. James, Keller, and Rivers have the following capital balances; $48,000, $70,000 and $90,000 respectively. Because of a cash shortage James invests an additional $12,000 on June 1st. Each partner withdraws $1,000 per month. James, Keller, and Rivers receive a salary of $13,000, $15,000 and $20,000, respectively, for work done during the year. Each partner receives interest of 8% on their weighted average capital balance without regard to normal drawings. Any remaining profits are split 20%, 30%, and 50% respectively. The net income for the year is $30,000. What are the ending capital balances for each partner? Remaining income (loss): CALCULATION OF JAMES INTEREST ALLOCATION