PROBLEMSETC

PROBLEM121C
R.Ayoub,M.Basil,andS.Reganinvested$200,000,$30,000,and$20,000,respectively,ina
partnership.Duringitsfirstcalendaryear,thefirmearned$204,000.
Required
PreparetheentrytoclosethefirmsIncomeSummaryaccountasofitsDecember31yearend
andtoallocatethe$204,000netincometothepartnersundereachofthefollowingseparate
assumptions:Thepartners(1)havenoagreementonthemethodofsharingincomeandloss;(2)
agreedtoshareincomeandlossintheratiooftheirbeginningcapitalinvestments;and(3)agreed
toshareincomeandlossbyprovidingannualsalaryallowancesof$20,000toAyoub,$34,000to
Basil, and $65,000 to Regan; granting 10% interest on the partners beginning capital
investments;andsharingtheremainderequally.
PROBLEM122C
SlimShadyandAceDavidsonareformingapartnershiptowhichShadywilldevoteonehalf
timeandDavidsonwilldevotefulltime.Theyhavediscussedthefollowingalternativeplansfor
sharingincomeandloss:(a)intheratiooftheirinitialcapitalinvestments,whichtheyhave
agreed will be $50,000 for Shady and $70,000 for Davidson; (b) in proportion to the time
devotedtothebusiness;(c)asalaryallowanceof$3,500permonthtoDavidsonandthebalance
inaccordancewiththeratiooftheirinitialcapitalinvestments;or(d)asalaryallowanceof
$3,500permonthtoDavidson,10%interestontheirinitialcapitalinvestments,andthebalance
sharedequally.Thepartnersexpectthebusinesstoperformasfollows:Year1,$48,000netloss;
Year2,$96,000netincome;andYear3,$144,000netincome.
Required
Preparethreetableswiththefollowingcolumnheadings:
Income(Loss)

Year_____

SharingPlan

Calculations

Shady Davidson

Completethetables,oneforeachofthefirstthreeyears,byshowinghowtoallocatepartnership
incomeorlosstothepartnersundereachofthefourplansbeingconsidered.(Roundanswersto
thenearestwholedollar.)
PROBLEM123C
Winona, Betty, and Rose formed the WBR Partnership by making capital contributions of
$250,000,$340,000,and$170,000,respectively.Theypredictannualpartnershipnetincomeof
$380,000andareconsideringthefollowingalternativeplansofsharingincomeandloss:(a)

equally;(b)intheratiooftheirinitialcapitalinvestments;or(c)salaryallowancesof$30,000to
Winona,$40,000toBetty,and$60,000toRose;interestallowancesof8%ontheirinitialcapital
investments;andthebalancesharedequally.
Required
1.Prepareatablewiththefollowingcolumnheadings:
Income(Loss)
SharingPlan

Calculations

WinonaBetty

Rose Total

Usethetabletoshowhowtodistributenetincomeof$380,000forthecalendaryearunder
eachofthealternativeplansbeingconsidered.(Roundanswerstothenearestwholedollar.)
2.Prepareastatementofchangesinpartnersequityshowingtheallocationofincometothe
partnersassumingtheyagreetouseplan(c),thatincomeearnedis$420,000,andthatWinona,
Betty,andRosewithdraw$25,000,$35,000,and$14,000,respectively,atyearend.
3.PreparetheDecember31journalentrytocloseIncomeSummaryassumingtheyagreetouse
plan(c)andthatnetincomeis$420,000.Alsoclosethewithdrawalsaccounts.
PROBLEM124C
Part1. Dane,Mike,andJonarepartnerswithcapitalbalances asfollows:Dane,$222,000;
Mike,$250,000;andJon,$348,000.Thepartnersshareincomeandlossina4:2:4ratio.Mike
decidestowithdrawfromthepartnership,andthepartnersagreetonothavetheassetsrevalued
uponhisretirement.PreparejournalentriestorecordMikesFebruary1withdrawalfromthe
partnershipundereachofthefollowingseparateassumptions:Mike(a)sellshisinteresttoKarl
for$288,000afterDaneandJonapprovetheentryofKarlasapartner;(b)giveshisinteresttoa
soninlaw,Zach,andthereafterDaneandJonacceptZachasapartner;(c)ispaid$250,000in
partnershipcashforhisequity;(d)ispaid$500,000inpartnershipcashforhisequity;and(e)is
paid$150,000inpartnershipcashplusequipmentrecordedonthepartnershipbooksat$132,000
lessitsaccumulateddepreciationof$69,800.
Part2. AssumethatMikedoesnotretirefromthepartnershipdescribedinPart(1).Instead,
MarcisadmittedtothepartnershiponFebruary1witha25%equity.Preparejournalentriesto
recordMarcsentryintothepartnershipundereachofthefollowingseparateassumptions:Marc
invests(a)$273,334;(b)$210,000;and(c)$476,000.

PROBLEM125C
Able,BakerandCourtshareincomeandlossina2:1:5ratio.Thepartnershavedecidedto
liquidatethepartnership.Onthedayofliquidationtheirbalancesheetappearsasfollows:
ABLE,BAKER,ANDCOURT
BalanceSheet
May31
Assets
Cash
Inventory

Totalassets

LiabilitiesandEquity
$20,500
Accountspayable
$57,000
180,000
Able,Capital
8,000
Baker,Capital83,500
Court,Capital52,000
_________
_________
$200,500
Totalliabilitiesandequity$200,500

Required
Preparethejournalentriesfor(a)thesaleofinventory,(b)theallocationofitsgainorloss,(c)
thepaymentofliabilitiesatbookvalueand(d)thedistributionofcashineachofthefollowing
separatecases:Inventoryissoldfor(1)$200,000;(2)$400,000;(3)$80,000andanypartners
withcapitaldeficitspayintheamountoftheirdeficits;and(4)$55,000andthepartnershaveno
assetsotherthanthoseinvestedinthepartnership.(Roundtothenearestdollar).