Chapter 14 Partnerships
Questions1. No. Partners have the right to select the people with whom they associate themselves
as partners. 2. Death, bankruptcy, or the legal inability of a partner to contract ends a partnership. In
addition, if a partnership is organized for the purpose of completing a specific business project, the partnership ends when the project is completed. If the business for which the partnership was organized cannot be completed but goes on indefinitely, the partnership may be dissolved at the will of any one of its partners.
3. Mutual agency means that each partner is an agent of the partnership and can commit it to contracts that are within the scope of its business.
4. Yes. Such an agreement is binding on members of the partnership. It is also binding on outsiders who know of the agreement. However, it is not binding on outsiders who do not know of the agreement.
5. Unlimited liability means that the creditors of a partnership have the right to require each partner to be personally responsible for all debts of the partnership.
6. All partners in a general partnership have unlimited liability. A limited partnership includes both general and limited partners, but the limited partners have no personal liability for partnership debts. Also, the general partners assume the management duties of the partnership.
7. George’s claim is not valid unless the previously agreed upon method of sharing net incomes and losses granted George an annual salary of $25,000. Unless the partnership agreement says otherwise, partners have no claim to a salary allowance in payment for their services.
8. If partners agree on the method of sharing incomes, but say nothing of losses, any losses are shared in the same manner as incomes.
9. The allocation of net income to the partners is reported on the statement of partners’ equity.10. At all times in the accounting history of a partnership, assets must equal liabilities plus
owners’ equity. When the assets are converted to cash, any gains or losses are allocated to the capital accounts of the partners; and when creditors’ claims are paid, assets and liabilities are reduced by equal amounts. Therefore, when the remaining assets are in the form of cash, the amount of cash must equal the proprietary claims of the partners.
11. No. Kay is still liable to her former partners for her share of the losses.12. The remaining partners should share the decline in their equities in accordance with
their income-and-loss-sharing ratio.
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QUICK STUDY
Quick Study 14-1 (10 minutes)The partnership will probably have to pay because it is a merchandising firm. That is, if the vendor knows nothing to the contrary, the vendor may assume that Campbell has the right, because of mutual agency, to bind the firm to contracts for the purchase of merchandise.
Under these circumstances, the public accounting firm is not in the merchandising business. Because the purchase of merchandise to be sold is not within the normal scope of the business of this firm, the vendor has no right to assume Campbell is acting as the agent for the partnership. Hence, the firm probably will not have to pay.
Quick Study 14-2 (10 minutes)Since Hillier is a limited partner, he is not personally liable for any debts of the partnership.
Quick Study 14-3 (10 minutes)201
1Mar. 1
Cash.................................................50,000
Len Peters, Capital....................... 20,000 Beau Silver, Capital...................... 30,000
Quick Study 14-4 (10 minutes)
a. Net incomes and losses are split equally in the absence of a partnership agreement. Therefore, $120,000/2 = $60,000 should be allocated to each partner.
b.2011Mar. 31
Income Summary...............................120,000
Bill Ace, Capital........................... 60,000 Dennis Bud, Capital..................... 60,000
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c.2011Mar. 31
Bill Ace, Capital.................................60,000
Dennis Bud, Capital...........................60,000 Income Summary........................ 120,000
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Quick Study 14-5 (20 minutes)2011Dec.
31Income Summary........................... 48,0
00 Lisa Montgomery, Capital......... 41,5
00 Joel Calmar, Capital.................. 6,50
0 To transfer net income of $48,000 from the income summary to the partners’ capital accounts.
Calculations:MontgomeryCalmar Total
Net income............................ $48,000Salary allowances: Montgomery........................$45,000 Calmar................................ $10,000Total salaries allocation ......... – 55,000 Balance of net income over allocated.................................($7,000) Balance allocated equally: Montgomery (50% × –$7,000) (3,500) Calmar (50% × –$7,000)....... (3,500) Total allocated equally......... 7,000 Balance of net income........... $ 0 Allocation to each partner .....$41,500 $ 6,500$48,000
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Quick Study 14-6 (15 minutes)2011Dec.
31Jenn Smith, Capital......................... 56,0
00Mike Yang, Capital.......................... 24,0
00 Income Summary....................... 80,00
0 To transfer net loss of $80,000 from the income summary to the partners’ capital accounts.
Calculations:Smith Yang Total
Net loss................................................................$(80,000)Salary allowances: Smith.................................. $115,000 Yang................................... $90,000Total salaries allocation ......... – 205,000 Balance of net loss over allocated.............................$(285,000) Balance allocated equally: Smith (3/5 × –$205,000)....... (171,000) Yang (2/5 × –$205,000)........ (114,000) Total allocated equally......... 205,000 Balance of net loss................ $ 0 Allocation to each partner ..... $(56,000 ) $(24,000 ) ...............................$(80,000)
Quick Study 14-7 (10 minutes)2011
Oct. 1 Cash.........................................................30,000
Fontaine, Capital................................. 30,000
To record admission of Fontaine by investment;
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30,000 + 30,000 + 30,000 = 90,000 x 1/3 = 30,000 to Fontaine.
Quick Study 14-8 (10 minutes)2011Mar. 12
Ramos, Capital..........................................10,000
Briley, Capital...........................................10,000
Fontaine, Capital................................. 20,000
To record admission of Fontaine by purchase; 60,000 total equity x 1/3 = 20,000 to Fontaine.
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Quick Study 14-9 (10 minutes)2011
June 17 Cash.........................................................30,000
Pollard, Capital.........................................3,000
Mission, Capital........................................3,000
Bishop, Capital..................................... 36,000
To record the admission of Bishop; 60,000 + 30,000 = 90,000 total equity x 40% = 36,000.
Quick Study 14-10 (10 minutes)2011Apr. 21
Cash.........................................................30,000
Wilson, Capital..................................... 18,000
Beacon, Capital.................................... 6,000
Metcalf, Capital.................................... 6,000
To record the admission of Wilson; 60,000 + 30,000 = 90,000 total equity x 20% = 18,000.
Quick Study 14-11 (10 minutes)2011Nov. 23
Stuart, Capital..........................................35,000
Cash.................................................... 35,000
To record the retirement of Stuart.
Quick Study 14-12 (10 minutes)2011Nov. 23
Peter, Capital............................................22,000
Cash.................................................... 15,000
Oliver, Capital...................................... 5,25Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 14 127
0 Wendell, Capital................................... 1,75
0 To record the retirement of Peter; 22,000 – 15,000 = 7,000 x 3/4 = 5,250 bonus to Oliver; 7,000 x ¼ = 1,750 bonus to Wendell.
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Quick Study 14-13 (10 minutes)
2011Mar. 15
Darlene, Capital........................................250,000
Linda, Capital...........................................25,000
Sue, Capital..............................................25,000
Cash.................................................... 300,000
To record the retirement of Darlene; 300,000 – 250,000 = 50,000 x 2/4 = 25,000 allocated to each remaining partner as a reduction.
Quick Study 14-14 (20 minutes)2011Apr.
1Sam, Capital..............................................87,500
Andrews, Capital........................................63,000Mary, Capital.............................................56,500 Cash.....................................................207,00
0 To record final distribution of cash to partners.
Calculations:Cash Equipme
ntAccum
. Amort.
Sam, Capit
al
Andrews,
Capital
Mary, Capit
alAccount balances immediately prior to liquidation..................
$ 32,000
$151,000
$36,000
$ 65,00
0$
48,000$34,0
00Sale of Equipment and allocation of gain 3:2:3...................
+175, 000
– 151,000
-36,000
+22, 500
+15,0 00
+22, 500
Balance...................... $ 207,00
0$ 0
$ 0
$ 87,50
0$
63,000
$ 56,50
0
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Quick Study 14-15 (20 minutes)2011
Apr. 1 Sam, Capital.............................. 53,750
Andrews, Capital........................ 40,500
Mary, Capital............................. 22,750
Cash...................................... 117,000
To record final distribution of cash to partners.
Calculations:Cash Equipm
entAccum.
Amort.
Sam, Capital
Andrews,
Capital
Mary, Capit
al
Account balances immediately prior to liquidation..................
$ 32,000
$151,000
$36,000
$ 65,000
$ 48,000
$34,000
Sale of Equipment and allocation of loss 3:2:3..........................
+85,0 00
– 151,00
0
-36,00
0 -
11,250 -7,500
- 11,25
0Balance...................... $
117,000
$ 0
$ 0
$ 53,750
$ 40,500
$ 22,75
0EXERCISES
Exercise 14-1 (20 minutes)1. Keith, Scott, and Brian might first consider organizing
their business as a general partnership. However, a problem for the new graduates is that they do not have funds and with no past business experience will probably have trouble getting a business loan. Therefore, instead of a partnership, another option is to incorporate. They can find investors to contribute capital for shares. They can structure the financing so that they remain the major shareholders in the company. Several key advantages to the corporate form is that they will have limited liability and the potential to sell more shares if additional funds are needed. As a corporation any profits will be subject
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to corporate income tax. Any dividends paid to the shareholders will also be taxed at the individual level. However, any salaries that Keith, Scott, and Brian pay themselves will be tax-deductible expenses. A possible downside however is that a bank is likely to ask for a personal guarantee and then they will actually lose the limited liability feature.
2. The two doctors should form a partnership. The partnership can borrow funds from the bank to obtain the initial needed capital for the business. The advantages of the partnership are ease of formation and owner authority. Also the owners will pay individual taxes on profits from the partnership but the partnership will not be taxed.
3. Matt should consider using a limited partnership. Given his real estate expertise he can manage the day to day activities of the partnership and serve as its general partner. He can raise the necessary capital by admitting limited partners. The advantages to Matt will be the authority over the partnership that he will have as general partner and the ease of raising capital. All partners will pay individual taxes on profits distributed to them but the partnership entity will not pay income tax.
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Exercise 14-2 (25 minutes)1)2011
Feb. 1
Cash.............................................. 105,000
Land.............................................. 120,000
Building......................................... 135,000
Long-Term Notes Payable......... 45,000 Tessa Williams, Capital............. 105,00
0 Audrey To, Capital.................... 210,00
0 To record initial capital investments.
Nov. 20
Tessa Williams, Withdrawals.......... 60,000
Audrey To, Withdrawals................. 45,000 Cash........................................ 105,00
0 To record partners’ withdrawals.
2011Dec.
31Income Summary.......................... 102,00
0 Tessa Williams, Capital............ 66,750 Audrey To, Capital................... 35,250 To close Income Summary account.
Dec. 31
Tessa Williams, Capital.................. 60,000
Audrey To, Capital......................... 45,000 Tessa Williams, Withdrawals.... 60,000 Audrey To, Withdrawals........... 45,000 To close withdrawals accounts.
*Supporting calculations:Willia
msTo Total
Net income................................ $ 102,00
0 Salary allowance:
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Williams................................... $52,500
Interest allowances: Williams (20% on $105,000)...... 21,000 To (20% on $210,000)...............
$42,00
0 Total salary and interest allowances...................................
$73,500
$42,000
(115, 500)
Balance of income to be allocated...................................................
$(13,500)
Balance allocated equally: Williams (50% × -$13,500)........ –6,750 To (50% × -$13,500)................. –6,750 Total allocated equally............... (13,5
00) Balance of income......................
$ -
0- Shares of the partners................ $66,75
0$35,25
0 $102,0
00
Exercise 14-2 (concluded)2)Capital account balances: William
sTo
Initial investment.................................... $ 105,00
0
$210,000
Withdrawals............................................ (60,000)
(45,000)
Share of income*..................................... 66,75 0
35,2 50
Ending balances...................................... $111,750
$200,250
Exercise 14-3 (30 minutes)Share
to Newto
n
Share to Scampi Total
Plan (a)
$180,000 × 1/2................ $90,000
$90,000 $180,000
Plan (b)
($52,000/$130,000) × $180,000........................
$72,000
$ 72,000
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$180,000........................ ______ $108,000
108,0 00
$72,000
$108,000
$180,000
Plan (c)
Net income..................... $180,000
Salary allowances........... $85,000
$65,000
Interest allowances:($52,000 × 10%)............. 5,200($78,000 × 10%)............. 7,800 Total salary and interest. $90,20
0$72,800 (163,0
00)Balance of income........... $
17,000
Balance allocated equally:($17,000 × 50%)............. 8,500 8,500 (17,00
0) Balance of income........... ______ ______ $ -
0 - Shares of each partner.... $98,70
0$81,300 $180,0
00
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Exercise 14-4 (35 minutes)Share to
LoweShare to Bentley Total
1. Net income................ $145,300
Salary allowances...... $85,000 $65,000Interest allowances:($ 80,000 × 15%)...... 12,000($140,000 × 15%)......
21,000Total salaries and interest.....................
$97,000 $86,000 $(183,000)
Balance of income...... $ (37,700
)Remainder 3:2 ratio:(– $37,700 × 3/5:–$37,700 x 2/5)............
(22,620) (15,080)
37,700
Balance of income...... $ -0-
Shares to each partner......................
$74,380 $70,920 $145,300
Share to
Lowe
Share to Bentley Total
2. Net loss..................... $ (40,200)
Salary allowances...... $ 85,000
$ 65,000
Interest allowances:($80,000 × 15%)........ 12,000 ($140,000 × 15%)......
21,000 Total salaries and interest.....................
$ 97,000
$ 86,000
$(183,000)Balance of loss........... $(223,200)Remainder 3:2 ratio:
(–$223,200 × 3/5:–$223,200 x 2/5)..........
(133,920)
(89,280) 223,200 Balance of income...... ____ ____ $ -
0- Shares to each partner
$ ( 36,92
$(3,280) $ (40,200)
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Exercise 14-5 (25 minutes)1.2011Dec.
31Income Summary........................... 30,000
Kit Sharp, Capital.......................... 72,000 Josh Stevens, Capital................ 102,000 To transfer net income of $60,000 to partners’ capital accounts.
Calculations:Stevens Sharp Total
Net income............................ $ 30,000Salary allowances: Stevens...............................$130,000Interest allowances: Stevens (15% on $40,000) ... 6,000 Sharp (15% on $200,000) .... _ __ __ 30,000 Total salaries and interest allocation $136,000 $ 30,000.............................. –166,000 Balance of net income over allocated.............................$(136,000) Balance allocated on 1:3 ratio: Stevens (1/4 × –$136,000). . . (34,000) Sharp (3/4 × –$136,000)....... (102,000) Total allocated.................... 136,000 Balance of net income........... $ 0 Allocation to each partner .....$102,000 $ (72,000 ) $ 30,000
2.
Capital account balances: Stevens
Sharp
Initial investment.................................... $ 40,000
$200,000
Withdrawals............................................ (7,000) (24,000)
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Share of income...................................... 102,000
(72,0 00)
Ending balances...................................... $135,000
$104,000
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Exercise 14-6 (15 minutes)Debra Glen Total
Net income............................. $116,000
4
Salary allowances: Debra.................................... $100,0
00 Glen...................................... $ 0 Total salaries allocation............ (100,0
00)
Balance of net income to be allocated..................................
$ 16,000
3
Balance allocated equally: Debra (50% × –$ ? ).......... 8,0002
Glen (50% × –$ ? )............ 8,0001
Total allocated equally........... Balance of net income............
$
0 Allocation to each partner...... $
108,000
5 $ 8,000 $116,000
1. If Glen’s capital account was credited $8,000 and he was allocated $0 salaries, then his allocation of income is based on his 50% share of the balance remaining after salaries are allocated; $8,000.
2. Since Glen’s 50% share is $8,000, Debra’s 50% share must be $8,000.
3. If 50% of the balance remaining = $8,000, then the balance remaining must be equal to 2 × $8,000 = $16,000.
4. If the balance remaining is $16,000 and total salaries allocated is $100,000, then net income must be equal to $16,000 + $100,000 = $116,000.
5. Debra’s share of net income is $100,000 + $8,000 = $108,000.
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Exercise 14-7 (30 minutes)1.
Jensen Yang Total Net income................................ $
63,600 Salary allowance: Jensen...................................... $30,00
0 Yang........................................ $20,00
0 Total salary allowances.............. (50,0
00) Balance of income to be allocated...................................................
$ 13,600
Balance allocated on a 3:2 ratio: Jensen (3/5 × $13,600)............. 8,160 Yang (2/5 × $13,600)................ 5,440 Total allocated........................... (13,60
0) Balance of income......................
$ -
0- Shares of the partners................ $38,16
0$25,44
0$
63,600
2.2011Dec. 31
Income summary.......................................63,600
Shawna Jensen, capital.................... 38,160
Mike Yang, capital........................... 25,440
To record closing of net income to capital.
3.DOWNLOADS ETC.
Statement of Partners’ EquityFor Year Ended December 31, 2011
Jensen Yang TotalCapital, December 31, 2010......................
$ 3,800
$ 4,600
$ 8,400
Plus:Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.140 Fundamental Accounting Principles, Twelfth Canadian Edition
Net income.............38,160 25,440
63,600
Total.........................$41,960
$30,040
$72,000
Less: Partners’ withdrawals................
31,000 26,000
57,000
Capital, December 31, 2011......................
$10,960
$ 4,040
$15,000
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Exercise 14-7 (concluded)
DOWNLOADS ETC.Balance Sheet
December 31, 2011Assets Current assets: Cash........................................... $12,2
00 Office supplies............................ 1,37
0 Total current assets................... $
13,570
Property, plant and equipment: Office equipment........................ $
8,600 Less: Accumulated amortization.....................................
3,500 5,1 00
Total assets...................................... $ 18,67
0
Liabilities Current liabilities: Accounts payable........................ $
350 Utilities payable......................... 120 Current portion of note payable. . 2,000 $
2,470 Total current liabilities............ Long-term liabilities: Notes payable, due May, 2013 (less current portion)......................................
1,20 0
Total liabilities............................... $ 3,670
Partners’ Equity Shawna Jensen, capital................... $
10,960
Mike Yang, capital.......................... 4,04 0
Total partners’ capital.................... 15,00 0
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Total liabilities and partners’ equity. . $ 18,67
0Analysis component:The partners’ capital accounts may be so small relative to the amount of the withdrawals made because:
— the business has very few liabilities and operates at a net income thus allowing the partners to withdraw the majority of the profits
it can be assumed that since withdrawals are significant, the partners are not wanting to expand the business by investing in additional assets.
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Exercise 14-8 (25 minutes)a)July 1 Cash.............................................. 95,000
Megan, Capital.......................... 95,000
To record admission of Megan [($380,000 + $95,000) × 20%].
b)July 1 Cash............................................. 115,00
0 Megan, Capital......................... 99,00
0 Hagan, Capital......................... 12,00
0 Baden, Capital......................... 4,000 To record admission of Megan.*
*Supporting computations: $380,000 + $115,000 = $495,000
$495,000 × 20% = $99,000 $115,000 – $99,000 = $16,000 $ 16,000 × 75% = $12,000
$ 16,000 × 25% = $4,000
c)July
1Cash............................................. 55,000
Hagan, Capital............................... 24,000Baden, Capital............................... 8,000 Megan, Capital......................... 87,00
0 To record admission of Megan.*
*Supporting computations:$380,000 + $55,000 = $435,000$435,000 × 20% = $87,000$ 55,000 – $87,000 = –$32,000
–$ 32,000 × 75% = –$24,000–$ 32,000 × 25% = –$8,000
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Exercise 14-9 (20 minutes)(a)
2011Sept. 1 Cash........................................... 210,00
0 Wil Court, Capital.................. 210,00
0 To record the admission of new partner; 100,000 + 390,000 + 210,000 = 700,000 total equity; 700,000 x 30% = 210,000.
(b)Sept. 1 Cash........................................... 210,00
0 Wil Court, Capital.................. 140,00
0 Gunnar Schwiede, Capital...... 28,000 Dietar Loris, Capital.............. 42,000 To record admission of new partner with bonus to old partners; 700,000 x 20% = 140,000 equity to Court; 210,000 – 140,000 = 70,000 bonus to old partners; 70,000 x 2/5 = 28,000 to Schwiede; 70,000 x 3/5 = 42,000 to Loris.
(c)Sept. 1 Cash........................................... 210,00
0Gunnar Schwiede, Capital............ 56,000Dietar Loris, Capital..................... 84,000 Wil Court, Capital.................. 350,00
0 To record admission of new partner with bonus to new partner; 700,000 x 50% = 350,000 equity to Court; 350,000 – 210,000 = 140,000 bonus to Court to be allocated between old partners; 140,000 x 2/5 = 56,000; 140,000 x 3/5 = 84,000.
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Exercise 14-10 (10 minutes)Apr.
30Prince, Capital................................ 70,000
Queen, Capital.......................... 70,000
To record admission of Queen.
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Exercise 14-11 (15 minutes)a)Nov.
30Tran, Capital................................. 25,000
Cash........................................ 25,000
To record retirement of Tran.
b)Nov.
30Tran, Capital................................. 25,000
Holt, Capital (2/8 × $5,000)............ 1,250Barth, Capital (6/8 × $5,000).......... 3,750 Cash........................................ 30,00
0 To record retirement of Tran.
c)Nov.
30Tran, Capital................................. 25,000
Holt, Capital (2/8 × $2,500)...... 625 Barth, Capital (6/8 × $2,500).... 1,875 Cash........................................ 22,50
0 To record retirement of Tran.
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 14 147
Exercise 14-12 (25 minutes)(a)
2011Oct. 1
4Doug Morris, Capital.................... 60,000
Accumulated Amortization, Car.... 22,000 Car....................................... 42,000 Cash..................................... 40,000 To record retirement of a partner; cost of 42,000 – book value of 20,000 = accum. amort. of 22,000.
(b)Oct. 1
4Doug Morris, Capital.................... 80,000
Accumulated Amortization, Car.... 22,000 Car....................................... 42,000 Cash..................................... 40,000 Barb Rusnak, Capital............. 10,000 Len Peters, Capital................ 10,000 To record retirement of a partner; 80,000 – 60,000 = 20,000 bonus to old partners; 20,000 x 40/80 = 10,000 bonus allocated to each of Rusnak and Peters.
(c)Oct. 1
4Doug Morris, Capital.................... 30,000
Barb Rusnak, Capital................... 15,000Len Peters, Capital...................... 15,000Accumulated Amortization, Car.... 22,000 Car....................................... 42,000 Cash..................................... 40,000 To record retirement of a partner; 60,000 – 30,000 = 30,000 bonus to Morris; 30,000 x 40/80 = 15,000 allocated to each of Rusnak and Peters.
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Exercise 14-13 (20 minutes)2012Jan.
1
Cash.......................................................................................................
112,000
Accumulated Amortization, Equipment.......................................
178,000
Loss on Sale of Equipment*.............. 14,000 Equipment................................... 304,00
0 To record sale of equipment.
1Les Wallace, Capital (14,000 × 2/4).... 7,000
Mavis Dunn, Capital (14,000 × 1/4).... 3,500Sig Jensen, Capital (14,000 × 1/4)...... 3,500 Cash........................................... 14,000 To distribute loss on sale of equipment to partners.
1Accounts Payable............................. 14,000
Notes Payable.................................. 24,000 Cash........................................... 38,000 To pay creditors.
1 Les Wallace, Capital......................... 55,000Mavis Dunn, Capital......................... 24,500Sig Jensen, Capital........................... 20,500 Cash........................................... 100,00
0 To distribute remaining cash to partners.
Calculations:
Cash Equipment
Accum. Amort., Equipme
nt
Accounts
Payable
Notes Payabl
e
Les Wallac
e, Capita
l
Mavis Dunn, Capita
l
Sig Jensen
, Capita
l
Account balances December 31, 2011... $
26,000
$ 304,000
$ 178,000
$ 14,000
$ 24,000
$62,000
$28,000
$24,000
Sale of equipment
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for a loss of $14,000. +112,000
– 304,000
– 178,000
– 7,000
– 3,500
– 3,500
Balance.................... $ 138,0
00
$ 0
$ 0 $ 14,000
$ 24,000
$55,000
$24,500
$20,500
Payment of liabilities..................
– 38,00
0
– 14,000
– 24,000
Balance.................... $100,000
$ 0
$ 0 $ 0
$ 0
$55,000
$24,500
$20,500
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Exercise 14-13 (concluded)*Note – Students may wish to combine the entries for the sale of the equipment and distribution of the loss on sale of equipment as follows :Jan.
1
Cash.......................................................................................................
112,000
Accumulated Amortization, Equipment.......................................
178,000
Les Wallace, Capital (14,000 × 2/4).... 7,000Mavis Dunn, Capital (14,000 × 1/4).... 3,500Sig Jensen, Capital (14,000 × 1/4)...... 3,500 Equipment.............................. 304,00
0 To record sale of equipment and distribution of $14,000 loss on sale of equipment to partners.
Exercise 14-14 (20 minutes)2012Jan.
1Martha Wheaton, Capital.................. 190,00
0Sam Dun, Capital............................. 188,00
0 Cash........................................... 378,00
0 To distribute remaining cash to partners.
Cash Building
Accum.
Amort.,
Building
LandAccoun
ts Payabl
e
Martha
Wheaton,
Capital
Bess Jones, Capital
Sam Dun,
Capital
Account balances December 31, 2011........................
$ 92,00
0
$ 412,0
00
$ 240,0
00
$ 104,0
00
$ 64,00
0
$ 158,00
0
$(26,000)
$ 172,00
0Sale of land and building*..................+340,
000
–412,0
00
–240,0
00
– 104,0
00
+
32,000+
16,000 +
16,000Balance.................... $ $ $ $ $ $ $ $
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 14 151
432,000
0 0 0 64,000
190,000
(10,000)
188,000
Payment of liabilities..................
– 64,00
0
– 64,00
0
Balance.................... $ 368,0
00
$ 0
$ 0
$ 0
$ 0
$ 190,00
0
$ (10,00
0)
$ 188,00
0Payment of deficiency................
+ 10,00
0
+ $10,00
0
Balance.................... $ 378,0
00
$ 0
$ 0
$ 0
$ 0
$ 190,00
0
$ 0
$ 188,00
0
* $340,000 – ($412,000 – $240,000 + $104,000) = $64,000 gain$64,000 × 2/4 or 50% = $32,000 to Wheaton$64,000 × ¼ or 25% = $16,000 to each of Jones and Dun
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Exercise 14-15 (20 minutes)201
2Jan.
1Martha Wheaton, Capital.................. 183,33
3Sam Dun, Capital............................. 184,66
7 Cash........................................... 368,00
0 To distribute remaining cash to partners.
Calculations:
Cash Building
Accum.
Amort.,
Building
LandAccoun
ts Payabl
e
Martha Wheat
on, Capital
Bess Jones, Capital
Sam Dun,
Capital
Account balances December 31, 2011........................
$ 92,00
0
$ 412,0
00
$ 240,0
00
$ 104,0
00
$ 64,00
0
$ 158,00
0
$ (26,00
0)
$ 172,00
0Sale of land and building*..................+340,
000
–412,0
00
–240,0
00
– 104,0
00
+
32,000+
16,000 +
16,000Balance.................... $
432,000
$ 0
$ 0
$ 0
$ 64,00
0
$ 190,00
0
$ (10,00
0)
$ 188,00
0Payment of liabilities..................
– 64,00
0
– 64,00
0
Balance.................... $ 368,0
00
$ 0
$ 0
$ 0
$ 0
$ 190,00
0
$ (10,00
0)
$ 188,00
0Absorption of deficiency*...............
– 6,667
+ 10,000
– 3,333
Balance.................... $ 368,0
00
$ 0
$ 0
$ 0
$ 0
$ 183,33
3
$ 0
$184,667
*$10,000 × 2/3 = $6,667 to Wheaton (based on a remaining ratio of 2:1 or 2/3) $10,000 × 1/3 = $3,333 to Dun (based on a remaining ratio of 2:1 or 1/3)
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 14 153
Exercise 14-16 (30 minutes)1. Whiz Bam Boom Total Initial investments $115,60
0$
88,600 $95,80
0 $300,00
0 Allocation of all losses:
($300,000 – $30,000)/3...............
(90,000) (90,000)
(90,000)
(270,000)
Capital balances. . . $ 25,600
$ (1,400)
$ 5,800
$ 30,000
2.Dec. 31 Cash............................................. 1,400
Bam, Capital............................ 1,400 To record payment of deficiency.
31 Whiz, Capital................................. 25,600Boom, Capital................................ 5,800 Cash........................................ 31,40
0 To distribute remaining cash.
3. a)Dec. 31 Whiz, Capital................................. 700
Boom, Capital................................ 700 Bam, Capital............................ 1,400 To transfer deficiency to other partners.
b)Dec. 31 Whiz, Capital................................. 24,900
Boom, Capital................................ 5,100 Cash........................................ 30,00
0 To distribute remaining cash.
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.154 Fundamental Accounting Principles, Twelfth Canadian Edition
PROBLEMS
Problem 14-1A (50 minutes)a)Dec. 31
Income Summary............................. 351,000
Curtis Wall, Capital.................... 117,000
Jen Dock, Capital........................ 117,000
Lori Kent, Capital....................... 117,000
To close Income Summary.
b)Dec. 31
Income Summary............................. 351,000
Curtis Wall, Capital.................... 140,400
Jen Dock, Capital........................ 122,850
Lori Kent, Capital....................... 87,750
To close Income Summary.**Supporting computations: ($132,800/$332,000) × $351,000 = $140,400 ($116,200/$332,000) × $351,000 = $122,850 ($83,000/$332,000) × $351,000 = $87,750
c)Dec. 31
Income Summary............................ 351,000
Curtis Wall, Capital.................... 119,880
Jen Dock, Capital....................... 130,220
Lori Kent, Capital....................... 100,900
To close Income Summary.*
*Supporting calculations: Wall Dock Kent Total
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 14 155
Net income....................... $351,000
Salary allowances: Curtis Wall, Capital......................$104,
000 Jen Dock, Capital..........................$116,
000 Lori Kent, Capital......................... $
90,000
Interest allowances: Wall (10% on $132,800). 13,28
0 Dock (10% on $116,200) 11,62
0 Kent (10% on $83,000)...
8,3
00Total salaries and interest allocation..........................
$117,280
$127,620
$ 98,30
0
(343,2 00)
Bal. after interest and salaries.............................
$ 7,800
Balance allocated equally. 2,600 2,600 2,600 (7,80 0)
Balance of income............ $ 0
Shares of the partners...... $119,880
$130,220
$100,900
$351,000
Problem 14-2A (45 minutes)Preliminary calculations:Plan (a) & Plan (c)
Percentages based on initial investments:Bowtell = $66,000 / $165,000 = 40%Locke = $99,000 / $165,000 = 60%
Plan (b)
Percentages based on time:
Bowtell = (1/3) / (1/3 + 3/3) = 25%Locke = (3/3) / (1/3 + 3/3) = 75%
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(d)Salary allowance:Locke = 12 × $7,000 = $84,000
Plan (d)
Interest allowances:
Bowtell = 10% × $66,000 = $ 6,600Locke = 10% × $99,000 = $ 9,900
Plan a.Year Calculations
Share to
Bowtell
Share to Locke Total
1 Net loss.................................. $ (40,000)
40% × $40,000 loss.................$(16,000)
60% × $40,000 loss................. $(24,000)
2 Net income................ $ 120,000 40% x $120,000
income......................$
48,00060% x $120,000 income......................
$ 72,000
3 Net income................ $ 190,000 40% x $190,000
income......................$
76,00060% x $190,000 income......................
$114,000
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 14 157
Problem 14-2A (cont’d.)Plan b.
Year CalculationsShare
to Bowtel
l
Share to Locke Total
1 Net loss..................... $ (40,000)
25% x $40,000 loss... . $(10,000)
75% x $40,000 loss... . $ (30,000)
2 Net income................ $ 120,000 25% x $120,000
income......................$
30,00075% x $120,000 income......................
$ 90,000
3 Net income................ $ 190,000 25% x $190,000
income......................$
47,50075% x $190,000 income......................
$142,500
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Problem 14-2A (cont’d.)PLAN C.
Year CalculationsShare
to Bowtel
l
Share to Locke Total
1 Net loss..................... $ (40,000)
Salary allowances......
$ 84,000Total salaries............. $
-0- $
84,000 $
(84,000)Balance of loss........... $ (124,000Remainder 40/60
(initial investment ratio):(–$124,000 × 40%)..... (49,60
0)(–$124,000 × 60%)..... (74,400) 124,000 Balance of loss........... ____
____ $ -
0- Shares to each partner
$( 49,60
$ 9,600
$ (40,000)
2 Net income................ $ 120,000
Salary allowances......
$ 84,000Total salaries............. $
-0- $
84,000 $
(84,000)Balance of income...... $ 36,000Remainder 40/60
(initial investment ratio):($36,000 × 40%)........ 14,400($36,000 × 60%)........ 21,600 36,000Balance of income...... ____
____ $ -
0- Shares to each partner
$ 14,400
$ 105,600
$ 120,000
3 Net income................ $ 190,000
Salary allowances......
$ 84,000Total salaries............. $
-0- $
84,000 $
(84,000)Balance of income...... $ 106,000Remainder 40/60
(initial investment ratio):($106,000 × 40%)...... 42,400($106,000 × 60%)...... 63,600 106,000 Balance of income...... ____
____ $ -
0- Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 14 159
Shares to each partner
$ 42,400
$ 147,600
$ 190,000
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Problem 14-2A (concluded)Plan d.
Year CalculationsShare
to Bowtel
l
Share to Locke Total
1 Net loss..................... $ (40,000)
Salary allowances...... $ 84,000
Interest allowances:($66,000 × 10%)........ 6,600($99,000 × 10%)........
9,90
0 Total salaries and interest.....................
$ 6,600
$ 93,900
$(100,500)Balance of loss........... $(140,500)Remainder equally:
(–$140,500 × 50%)..... (70,250)
(70,250) 140,500 Balance of loss........... ____ ____ $ -
0- Shares to each partner
$ (63,650
$ 23,650
$ (40,000)
2 Net income................ $ 120,000
Salary allowances...... $ 84,000
Interest allowances:($66,000 × 10%)........ 6,600($99,000 × 10%)........
9,90
0 Total salaries and interest.....................
$ 6,600
$ 93,900
$(100,500)Balance of income...... $
19,500Remainder equally:($19,500 × 50%)........ 9,750 9,750 19,500Balance of income...... ___ ____ $ -
0- Shares to each partner
$ 16,350
$103,650
$ 120,000
3 Net income................ $ 190,000
Salary allowances...... $ 84,000
Interest allowances:($66,000 × 10%)........ 6,600($99,000 × 10%)........
9,90
0 Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 14 161
Total salaries and interest.....................
$ 6,600
$ 93,900
$(100,500)Balance of income...... $
89,500Remainder equally:(89,500 × 50%).......... 44,750 44,750 89,500Balance of income...... ___ ____ $ -
0- Shares to each partner
$ 51,350
$ 138,650
$ 190,000Problem 14-3A (40 minutes)
Part 1
Income (Loss)
SharingPlan
Calculations Conway
Chan Seghal Total
(a) $780,000/3.................... $260,000
$260,000
$260,000
$780,000
(b) $780,000 × ($490,000/$1,400,000)....
$273,000
$780,000 × ($560,000/$1,400,000)....
$312,000
$780,000 × ($350,000/$1,400,000)....
$ 195,000
Total allocated............... $273,000
$312,000
$ 195,000
$780,000
(c) Net income.................... $780,000
Salary allowances........... $ 190,00
0
$ 92,000
$ 120,000
Balance of income..........Interest allowances: 12% × $490,000.......... 58,800 12% × $560,000.......... 67,200 12% × $350,000.......... 42,00
0 Total salary and interest allowances.....................
$248,800
$ 159,200
$ 162,00
0
(570,000
)
Bal. of income................ $210,000
Balance allocated equally 70,000 70,000 70,000 (210,000
)Balance of income..........
$ 0
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.162 Fundamental Accounting Principles, Twelfth Canadian Edition
Shares of partners.......... $318,800
$229,200
$232,000
$780,000
Part 2CCS Consulting
Statement of Partners’ EquityFor Year Ended December 31, 2011
Conway
Chan Seghal Total
Capital, January 1........ $ -0-
$ -0-
$ -0-
$ -0-
Add: Investments by partners......................
490,000
560,000
350,000
1,400,000
Net income............. 318,8 00
229,2 00
232, 000
780, 000
Total......................... $808,800
$789,200
$582,000
$2,180,000
Less: Partners’ withdrawals................
80,0 00
60,0 00
40,0 00
180 ,000
Capital, December 31... $728,800
$729,200
$542,000
$2,000,000
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 14 163
Problem 14-3A (concluded)Part 3
Dec. 31
Income Summary............................ 780,000
Ben Conway, Capital................. 318,800
Ida Chan, Capital....................... 229,200
Clair Seghal, Capital.................. 232,000
To close Income Summary.
Dec. 31
Ben Conway, Capital....................... 80,000
Ida Chan, Capital............................ 60,000Clair Seghal, Capital....................... 40,000 Ben Conway, Withdrawals......... 80,00
0 Ida Chan, Withdrawals.............. 60,00
0 Clair Seghal, Withdrawals.......... 40,00
0 To close withdrawals accounts.
Problem 14-4A (25 minutes)a)May
1Cash................................................ 200,00
0 Dent, Capital*............................. 200,0
00 To record admission of Dent.
*Supporting calculations: $168,000 + $138,000 + $294,000 = $600,000 ($600,000 + $200,000) × 25% = $200,000 No bonus received or paid.
b)May
1Cash................................................ 145,00
0.00Zeller, Capital ($41,250* × 3/10)....... 12,375.
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00Acker, Capital ($41,250* × 2/10)....... 8,250.0
0Benton, Capital ($41,250* × 5/10)..... 20,625.
00 Dent, Capital.............................. 186,250
.00 To record Dent’s admission and bonus.
*Supporting calculations: ($600,000 + $145,000) × 25% = $186,250 $186,250 – $145,000 = $41,250 Bonus allocated to new partner.
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 14 165
Problem 14-4A (concluded)c)May 1
Cash.............................................. 262,000.00
Zeller, Capital ($46,500* × 3/10) 13,950.00
Acker, Capital ($46,500* × 2/10) 9,300.00
Benton, Capital ($46,500* × 5/10).............................................
23,250.00
Dent, Capital............................ 215,500.00
To record admission of Dent and bonus to old partners.
*Supporting calculations: ($600,000 + $262,000) × 25% = $215,500 $215,500 – $262,000 = $46,500 Bonus received by old partners.
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.166 Fundamental Accounting Principles, Twelfth Canadian Edition
Problem 14-5A (40 minutes)
a.2011
June 1 Cash.........................................................140,000
Equipment................................................180,000
Jill Bow, capital................................ 140,000
Aisha Amri, capital........................... 160,000
Note payable................................... 20,000
To record formation of partnership.
b.2011Nov. 20
Amri, withdrawals.....................................50,000
Cash................................................ 50,000
To record withdrawal by partner.
c.2012May 31
Income summary.......................................190,000
Jill Bow, capital................................ 122,600
Aisha Amri, capital........................... 67,400
To record closing of net income to capital.
Supporting calculations:Bow Amri Total
Net income................................ $190,000
Salary allowance: Bow......................................... $75,00
0 Interest allowances: Bow (8% on $140,000).............. 11,200 Amri (8% on $160,000).............
$12,80
0Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 14 167
Total salary and interest allowances...................................
$86,200
$12,800
(99,0 00)
Balance of income to be allocated...................................................
$ 91,000
Balance allocated 40/60: Bow (40% × $91,000)............... 36,400 Amri (60% × $91,000)............... 54,600 Total allocated equally............... (91,0
00) Balance of income...................... _ _____ ___ ___ $ -
0- Shares of the partners................ $122,6
00$67,40
0 $
190,000
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Problem 14-5A (concluded)d.
2012June 1 Cash.........................................................60,00
0Bow, capital..............................................11,20
0Amri, capital.............................................16,80
0 Wilems, capital................................ 88,00
0 To record admission of Wilems for a 20% interest.
Supporting calculations:Bow, capital = $140,000 + $122,600 = $ 262,600Amri, capital = $160,000 – $50,000 + $67,400 = 177,400Total equity = $ 440,000
ORJill Bow, Capital
Aisha Amri, Capital Total Equity
140,000 160,000 122,600 50,000 67,400 262,600 + 177,400 = 440,000
Once the total equity of $440,000 is determined,
THEN:
Total equity = $440,000 x 20% = $88,000 – $60,000 = $28,000 bonus to new partner
$28,000 x .4 = $11,200 to Bow; $28,000 x .6 = $16,800 to Amri
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 14 169
Problem 14-6A (30 minutes) a)May 1
McLean, Capital............................. 138,000
Freedman, Capital.................... 138,000
To record admission of Freedman.
b)May 1
McLean, Capital............................. 138,000
Park, Capital............................ 138,000
To record admission of Park.
c)May 1
McLean, Capital............................. 138,000
Cash........................................ 138,000
To record withdrawal of McLean with no bonus.
d)May 1
McLean, Capital............................ 138,000
Gale, Capital ($264,000 – $138,000) × 3/8............................................
47,250
Lux, Capital ($264,000 – $138,000) × 5/8............................................
78,750
Cash....................................... 264,000
To record withdrawal of McLean with bonus.
e)May 1
McLean, Capital............................. 138,000
Accum. Amortization, Computer Equip............................................
166,000
Gale, Capital ($19,500* × 3/8)... 7,312.50
Lux, Capital ($19,500* × 5/8).... 12,187.50
Computer Equipment................ 230,00Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.170 Fundamental Accounting Principles, Twelfth Canadian Edition
0.00 Cash........................................ 54,500.
00 To record withdrawal of McLean with bonus to old partners.
*$138,000 – ($230,000 – $166,000 + $54,500) = –$19,500
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 14 171
Problem 14-7A (75 minutes)
Part 1a.
Cash Truck
Accum. Amort., Truck
Accounts
Payable
Jim Vonne, Capital
Milton Kent, Capita
l
Ty Johnso
n, Capita
l
Account balances June 30, 2011...................... $
55,000
$ 471,00
0
$ 110,00
0
$ 104,30
0 $ 61,000
$ 160,7
00
$ 90,00
0Sale of truck for $390,500*.................... +390,5
00
– 471,00
0
– 110,00
0 + 2,950
+ 11,80
0
+ 14,75
0Balance....................... $
445,500
$ 0
$ 0
$ 104,30
0
$ 63,950 $ 172,5
00
$ 104,7
50Payment of liabilities. . . –
104,300
–104,30
0Balance....................... $
341,200
$ 0
Distribution of cash to partners....................
– 341,20
0 –63,950
– 172,5
00
– 104,7
50Balance....................... $
0$ 0 $
0$ 0
* $471,000 – $110,000 = $361,000; $390,500 – $361,000 = $29,500 gain
$29,500 × 1/10 = $2,950 to Vonne $29,500 × 4/10 = $11,800 to Kent $29,500 × 5/10 = $14,750 to Johnson
b.
Cash Truck
Accum. Amort., Truck
Accounts
Jim Vonne, Capital
Milton Kent, Capita
Ty Johnso
n,
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.172 Fundamental Accounting Principles, Twelfth Canadian Edition
Payable
l Capital
Account balances June 30, 2011...........................
$ 55,000
$ 471,00
0
$110,000
$ 104,3
00 $ 61,000
$ 160,7
00
$ 90,00
0
Sale of truck for $300,000*........................
+300,0 00
– 471,00
0
– 110,00
0 – 6,100
– 24,40
0
– 30,50
0Balance............................ $
355,000
$ 0
$ 0
$ 54,900 $ 136,3
00
$ 59,50
0Payment of liabilities........ –
104,300
– 104,3
00Balance............................ $
250,700
$ 0
Distribution of cash to partners...........................
– 250,70
0 –54,900
– 136,3
00
– 59,50
0Balance............................ $
0$ 0 $
0$ 0
* $471,000 – $110,000 = $361,000; $300,000 – $361,000 = $61,000 loss$ 61,000 × 1/10 = $6,100 to Vonne$ 61,000 × 4/10 = $24,400 to Kent$ 61,000 × 5/10 = $30,500 to Johnson
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 14 173
Problem 14-7A (continued)c.
CashTruck(net)
Accum. Amort., Truck
Accounts
Payable
Jim Vonne, Capital
Milton Kent,
Capital
Ty Johnso
n, Capital
Account balances June 30, 2011..............................
$ 55,000
$ 471,000
$ 110,000
$ 104,300
$ 61,000
$ 160,700
$90,000
Sale of truck for $170,000*...........................
+170,000
– 471,000
–110,000 – 19,100 –76,400
–95,500
Balance...............................$225,000
$ 0
$ 0 $ 41,900
$ 84,300
$ (5,500
)
Payment of liabilities........... –104,30
0
–104,300
Balance............................... $ 120,70
0
$ 0
Johnson pays deficiency...........................
+ 5,500
+ 5,500
$ 126,20
0
$ 0
Distribution of cash to partners......................
–126,20
0 –
41,900 –84,300 Balance............................... $
0$ 0
$ 0
* $471,000 – $110,000 = $361,000; $170,000 – $361,000 = $191,000 loss$191,000 × 1/10 = $19,100 to Vonne$191,000 × 4/10 = $76,400 to Kent$191,000 × 5/10 = $95,500 to Johnson
d.
CashTruck(net)
Accum. Amort., Truck
Accounts
Payable
Jim Vonne, Capita
l
Milton Kent, Capita
l
Ty Johnso
n, Capital
Account balances June 30, 2011....................... $ $ $ $ $ $ $
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.174 Fundamental Accounting Principles, Twelfth Canadian Edition
55,000471,00
0110,00
0104,30
0 61,000160,70
0 90,000 Sale of truck for $150,000*.....................
+150 ,000
– 471,00
0
–110,00
0 –
21,100 –
84,400
– 105,50
0 Balance......................... $205,0
00$ 0
$ 0
$ 39,900
$ 76,300
$ ( 15,50
0)Payment of liabilities..... –
104,300
– 104,30
0Balance......................... $
100,700
$ 0
Allocation of deficiency*. – 3,100
– 12,400
+ 15,500
$ 36,800
$ 63,900
$ 0
Distribution of cash to partners........................
– 100,70
0 –
36,800 –
63,900Balance......................... $
0$ 0
$ 0
*$471,000 – $110,000 = $361,000; $150,000 – $361,000 = $211,000 loss
$211,000 × 1/10 = $21,100 to Vonne $211,000 × 4/10 = $84,400 to Kent $211,000 × 5/10 = $105,500 to Johnson
**$15,500 × 1/5 = $3,100 to Vonne $15,500 × 4/5 = $12,400 to Kent
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 14 175
Problem 14-7A (concluded)Part 2
2011June 30
Jim Vonne, Capital.....................................63,950
Milton Kent, Capital..................................172,500
Ty Johnson, Capital...................................104,750
Cash.................................................... 341,200
To record the final distribution of cash to the partners.
Problem 14-8A (30 minutes)a.2011Dec. 3
1Cash........................................... 600,00
0Accumulated Amortization........... 166,00
0 Property, Plant and Equipment..................................
428,000
Gain on Liquidation*.............. 338,000
To record sale of property, plant and equipment.
31
Gain on Liquidation..................... 338,000
Trish Craig, Capital................ 253,500
Ted Smith, Capital................. 84,500 To record allocation of gain to partners’ equity; 338,000 x ¾ = 253,500; 338,000 x ¼ = 84,500.
31
Accounts Payable........................ 42,000
Cash..................................... 42,000 To record payment of liabilities.
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.176 Fundamental Accounting Principles, Twelfth Canadian Edition
31
Trish Craig, Capital...................... 457,500
Ted Smith, Capital....................... 176,500
Cash..................................... 634,000
To record final distribution of cash; Trish Craig, Capital = 204,000 + 253,500 = 457,500; Ted Smith, Capital = 92,000 + 84,500 = 176,500; Cash = 76,000 + 600,000 – 42,000 = 634,000.
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 14 177
Problem 14-8A (concluded)*NOTE: Students may wish to combine the sale and allocation of gain as follows:Dec. 3
1Cash........................................... 600,00
0Accumulated Amortization........... 166,00
0 Property, Plant and Equipment..................................
428,000
Trish Craig, Capital................ 253,500
Ted Smith, Capital................. 84,500 To record sale of property, plant and equipment and allocation of gain to partners.
b.2011Dec. 3
1Cash........................................... 120,00
0Accumulated Amortization........... 166,00
0Loss on Liquidation**................... 142,00
0 Property, Plant and Equipment..................................
428,000
To record sale of property, plant and equipment.
31
Trish Craig, Capital...................... 106,500
Ted Smith, Capital....................... 35,500 Loss on Liquidation................. 142,00
0 To record allocation of loss; 142,000 x ¾ = 106,500; 142,000 x ¼ = 35,500.
31
Accounts Payable........................ 42,000
Cash..................................... 42,000 To record payment of liabilities.
31
Trish Craig, Capital...................... 97,500
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.178 Fundamental Accounting Principles, Twelfth Canadian Edition
Ted Smith, Capital....................... 56,500 Cash..................................... 154,00
0 To record final distribution of cash; Trish Craig, Capital = 204,000 – 106,500 = 97,500; Ted Smith, Capital = 92,000 – 35,500 = 56,500; Cash = 76,000 + 120,000 – 42,000 = 154,000.
**NOTE: Students may wish to combine the sale and allocation of loss as follows:Dec. 3
1Cash........................................... 120,00
0Accumulated Amortization........... 166,00
0Trish Craig, Capital...................... 106,50
0Ted Smith, Capital....................... 35,500 Property, Plant and Equipment..................................
428,000
To record sale of property, plant and equipment.
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 14 179
Problem 14-1B (50 minutes)a)Dec. 31
Income Summary............................. 135,000
Paula Jones, Capital................... 45,000
Roy Rodgers, Capital.................. 45,000
Anne Jackson, Capital................. 45,000
To close Income Summary.
b)Dec. 31
Income Summary............................. 135,000
Paula Jones, Capital................... 56,700
Roy Rodgers, Capital.................. 45,900
Anne Jackson, Capital................. 32,400
To close Income Summary.*
*Supporting computations: ($92,400/$220,000) × $135,000 = $56,700 ($74,800/$220,000) × $135,000 = $45,900 ($52,800/$220,000) × $135,000 = $32,400
c)Dec. 31
Income Summary............................. 135,000
Paula Jones, Capital................... 68,240
Roy Rodgers, Capital.................. 31,980
Anne Jackson, Capital................. 34,780
To close Income Summary.*
*Supporting calculations: Jones Rodgers
Jackson Total
Net income....................... $135,000
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.180 Fundamental Accounting Principles, Twelfth Canadian Edition
Salary allowances: Paula Jones, Capital..... $75,0
00 Roy Rodgers, Capital.... $40,50
0 Anne Jackson, Capital... $45,50
0 Interest allowances: Jones (10% on $92,400).. 9,240 Rodgers (10% on $74,800)...........................
7,480
Jackson (10% on $52,800)...........................
5,28 0
Total salaries and interest $84,240
$47,980
$50,780
183,000
Bal. after interest and salaries.............................
$ (48,00
0)Balance allocated equally.. (16,0
00)(16,00
0)(16,000
) 48,0
00 Balance of income............
$
0 Shares of the partners...... $68,2
40 $31,98
0 $34,78
0 $135,0
00
Problem 14-2B (45 minutes)Preliminary calculations:Plan (a) & Plan (c)
Percentages based on initial investments:Monroe = $49,800 / $124,500 = 40%Young = $74,700 / $124,500 = 60%
Plan (b)
Percentages based on time:
Monroe = (1/3) / (1/3 + 3/3) = 25%Young = (4/3) / (1/3 + 3/3) = 75%
Plan (c) & Plan (d)
Salary allowance:
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 14 181
Young = 12 × $5,250 = $63,000
Plan (d)
Interest allowances:
Monroe = 10% × $49,800 = $4,980Young = 10% × $74,700 = $7,470 = $12,450
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.182 Fundamental Accounting Principles, Twelfth Canadian Edition
Problem 14-2B (cont’d.)Plan a.
Year CalculationsShare
to Monro
e
Share to Young Total
1 Net income............................. $ 30,500
40% × $30,500 income...................................
$ 12,200
60% × $30,500 income...................................
$ 18,300
2 Net loss..................... $ (82,500) 40% x $82,500 loss.... $
(33,0060% x $82,500 loss.... $(49,500)
3 Net income................ $ 215,000 40% x $215,000
income......................$
86,00060% x $215,000 income......................
$129,000
Plan b.Year Calculations
Share to
Monroe
Share to Young Total
1 Net loss..................... $ 30,500
25% x $30,500 income $ 7,625
75% x $30,500 income $ 22,875
2 Net loss..................... $(82,500) 25% x $82,500 loss.... $(20,6
25)75% x $82,500 loss.... $(61,875)
3 Net income................ $215,000 25% x $215,000
income......................$
53,75075% x $215,000 income......................
$161,250
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 14 183
Problem 14-2B (cont’d.)PLAN C.
Year CalculationsShare
to Monro
e
Share to Young Total
1 Net income................ $ 30,500
Salary allowances......
$ 63,000Total salaries............. $
-0- $
63,000$
(63,000)Balance of income...... $ (32,500)Remainder 40/60
(initial investment ratio):(–$32,500 × 40%)....... (13,00
0)(–$32,500 × 60%)....... (19,500) 32,500 Balance of income...... ____
____ $ -
0- Shares to each partner
$( 13,00
$ 43,500
$ 30,500
2 Net loss..................... $ (82,500)
Salary allowances......
$ 63,000Total salaries............. $
-0- $
63,000$
(63,000)Balance of loss........... $(145,500)Remainder 40/60
(initial investment ratio):(-$145,500 × 40%)..... -
58,200(-$145,500 × 60%)..... -87,300 145,500Balance of loss........... ____
____ $ -
0- Shares to each partner
$ (58,20
$(24,300)
$ (82,500)
3 Net income................ $ 215,000
Salary allowances......
$ 63,000Total salaries............. $
-0- $
63,000$
(63,000)Balance of income...... $ 152,000Remainder 40/60
(initial investment ratio):($152,000 × 40%)...... 60,800($152,000 × 60%)...... 91,200 152,000
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.184 Fundamental Accounting Principles, Twelfth Canadian Edition
Balance of income...... ____ ____
$ -0- Shares to each
partner$
60,800$
154,200$
215,000
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 14 185
Problem 14-2B (concluded)Plan d.
Year CalculationsShare
to Monro
e
Share to Young Total
1 Net income................ $ 30,500
Salary allowances...... $ 63,000
Interest allowances:($49,800 × 10%)........ 4,980($74,700 × 10%)........
7,47
0 Total salaries and interest.....................
$ 4,980
$ 70,470
$ (75,450)Balance of income...... $ (44,950)Remainder equally:
(–$44,950 × 50%)....... (22,475)
(22,475) 44,950 Balance of income...... ____ ____ $ -
0- Shares to each partner
$ (17,495
$ 47,995
$ 30,500
2 Net loss..................... $ (82,500)
Salary allowances...... $63,000 Interest allowances:($49,800 × 10%)........ 4,980($74,700 × 10%)........
7,47
0 Total salaries and interest.....................
$ 4,980
$ 70,470
$ (75,450)Balance of loss........... $(157,9
50)Remainder equally:(–$157,950 × 50%)..... (78,975
)(78,975) 157,950
Balance of loss........... ____ ____ $ -0- Shares to each
partner$
(73,995$
(8,505)$
(82,500)3 Net income................ $
215,000Salary allowances...... $
63,000 Interest allowances:($49,800 × 10%)........ 4,980($74,700 × 10%)........
7,47
0Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.186 Fundamental Accounting Principles, Twelfth Canadian Edition
Total salaries and interest.....................
$ 4,980
$ 70,470
$ (75,450)Balance of income...... $ 139,550Remainder equally:
(139,550 × 50%)........ 69,775 69,775 139,550Balance of income...... ____ ____ $ -
0- Shares to each partner
$ 74,755
$140,245
$ 215,000
Problem 14-3B (40 minutes) Part 1
Income (Loss)
SharingPlan
Calculations Vacon
Masters
Ramos
Total
(a)
$195,000/3................ $65,000
$65,000
$65,000
$195,000
(b)
$195,000 × ($116,640/$388,800). .
$58,500
$195,000 × ($129,600/$388,800). .
$65,000
$195,000 × ($142,560/$388,800). .
$71,500
Total allocated........... $58,500
$65,000
$71,500
$195,000
(c) Net income............... $195,000
Salary allowances..... $35,000
$20,000$45,000
Interest allowances: 10% × $116,640..... 11,664 10% × $129,600..... 12,960 10% × $142,560..... 14,256Total salary and interest....................
(138,8 80
)
Bal. of income.......... $ 56,120
Balance allocated equally....................
18,707 18,707 18,706* (56,12 0
)Balance of income..... _ _____ ____ __ $
0 Shares of partners.... $65,371
$51,667 $77,962 $195,000
*Decreased to $18,706 due to rounding.
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 14 187
Part 2
VMR PARTNERSHIPStatement of Partners’ Equity
For Year Ended December 31, 2011Vacon Maste
rsRamos Total
Capital, January 1........ $ -0-
$ -0-
$ -0-
$ -0-
Plus: Investments by owners........................
116,640
129,600
142,560
388,800
Net income............. 65, 371
51, 667
77,9 62
195,0 00
Total......................... $182,011
$181,267
$220,522
$583,800
Less: Partners’ withdrawals................
15, 000
20, 000
23,0 00
58,0 00
Capital, December 31... $167,011
$161,267
$197,522
$525,800
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.188 Fundamental Accounting Principles, Twelfth Canadian Edition
Problem 14-3B (concluded) Part 3
Dec. 31
Income Summary...................... 195,000
Milton Vacon, Capital........... 65,371
Milford Masters, Capital....... 51,667
Marita Ramos, Capital......... 77,962
To close Income Summary.
Dec. 31
Milton Vacon, Capital................ 15,000
Milford Masters, Capital............ 20,000Marita Ramos, Capital............... 23,000 Milton Vacon, Withdrawals. . 15,00
0 Milford Masters, Withdrawals.............................
20,000
Marita Ramos, Withdrawals. 23,000
To close withdrawals accounts.
Problem 14-4B (25 minutes)a)Nov. 30
Cash............................................... 76,500.00
Sung, Capital*........................... 76,500.00
To record admission of Sung.
*Supporting calculations: $306,000 + $76,500 = $382,500 $382,500 × 20% = $76,500 No bonus received or paid.
b)Nov. 30
Cash............................................... 54,000.00
Burke, Capital................................. 4,500.00
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 14 189
Comeau, Capital.............................. 9,000.00
LeJeune, Capital.............................. 4,500.00
Sung, Capital............................. 72,000.00
To record Sung’s admission and bonus.
*Supporting calculations:$306,000 + $54,000 = $360,000$360,000 × 20% = $72,000 to Sung$ 72,000 – $54,000 = $18,000$ 18,000 × 1/4 = $4,500 to Burke & LeJeune$ 18,000 × 2/4 = $9,000 to Comeau Bonus paid to new partner.
Problem 14-4B (concluded)c)Nov. 30
Cash............................................... 123,000.00
Comeau, Capital ($37,200* × 2/4)................................................
18,600.00
Burke, Capital ($37,200* × 1/4). . 9,300.00
Lejeune, Capital ($37,200* × 1/4)................................................
9,300.00
Sung, Capital............................. 85,800.00
To record admission of Sung and bonus to old partners.
*Supporting calculations:$306,000 + $123,000 = $429,000$429,000 × 20% = $85,800 to Sung$123,000 – $85,800 = $37,200 Bonus received by old partners.
Problem 14-5B (40 minutes)
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.190 Fundamental Accounting Principles, Twelfth Canadian Edition
a.2011
Nov. 1 Cash.........................................................80,000
Equipment................................................130,000
Truck........................................................60,000
Goth, Capital................................... 80,000
To, Capital....................................... 130,000
Selcido, Capital................................ 60,000
To record formation of partnership.
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 14 191
Problem 14-5B (concluded)b.
2012Oct. 31 Goth, Capital.............................................95,00
0 To, Capital....................................... 32,00
0 Selcido, Capital................................ 13,00
0 Income Summary............................. 50,00
0 To record closing of net loss to capital.
Supporting calculations:Goth To Selcido Total
Net loss..................................... $ (50,00
0) Salary allowance: Goth........................................$
-0- To............................................ $70,00
0 Selcido..................................... $70,00
0 Total salary................................ (140,
000) Balance of income to be allocated.....................................
$(190,000
Balance allocated 5:2:3: Goth (5/10 × $190,000).............(95,00
0) To (2/10 × $190,000)................ (38,00
0) Selcido (3/10 × $190,000)....................................
(57,000)
Total allocated equally............... 190,0 00
Balance of income......................
$ -0-
Shares of the partners................$(95,000)
$32,000
$13,000
$ (50,00
0)
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.192 Fundamental Accounting Principles, Twelfth Canadian Edition
c.2012
Nov. 1 To, Capital................................................10,000
Selcido, Capital.........................................15,000
Cash................................................ 10,000
Goth, Capital................................... 15,000
To record withdrawal of Goth.
Supporting calculations:Goth, Capital = $80,000 – $95,000 = $ (15,000) OR
$15,000 + $10,000 = $25,000 to allocate to remaining partners$25,000 × 2/5 = $10,000 absorbed by To$25,000 × 3/5 = $15,000 absorbed by Selcido
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 14 193
Goth, Capital 80,000
95,000 15,000
Problem 14-6B (50 minutes) a)Nov. 30
Lejeune, Capital.............................. 102,000
Devereau, Capital...................... 102,000
To record admission of Devereau.
b)Nov. 30
Lejeune, Capital.............................. 102,000
Shulak, Capital.......................... 102,000
To record admission of Shulak.
c)Nov. 30
Lejeune, Capital.............................. 102,000
Cash......................................... 102,000
To record withdrawal of Lejeune with no bonus.
d)Nov. 30
Lejeune, Capital.............................. 102,000
Burke, Capital ($129,000 – $102,000) × 1/3
9,000
Comeau, Capital ($129,000 – $102,000) × 2/3..............................
18,000
Cash......................................... 129,000
To record withdrawal of Lejeune with bonus.
e)Nov. 30
Lejeune, Capital.............................. 102,000
Accum. Amortization, Manufacturing Equipment......................................
45,000
Burke, Capital ($33,000* × 1/3). . 11,000
Comeau, Capital ($33,000* × 2/3) 22,000
Manufacturing Equipment.......... 78,00Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.194 Fundamental Accounting Principles, Twelfth Canadian Edition
0 Cash......................................... 36,00
0 To record withdrawal of Lejeune with bonus to old partners.
*$102,000 – ($78,000 – $45,000 + $36,000) = $33,000
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 14 195
Problem 14-7B (75 minutes)Part 1a.
Cash Equip.
Accum.
Amort.,
Equip.
A/P
Ernie Poppy
, Capit
al
Lynn Sweetb
ean Capital
Ned Olive, Capit
al
Account balances Oct. 15, 2011....................
$ 13,50
0$295,
600
$ 58,00
0
$ 56,70
0
$ 91,20
0$
60,000
$ 43,20
0
Sale of equipment for $270,000*..................
+270,000
–295,6
00
–58,00
0
+ 19,44
0+
6,480+
6,480Balance..................... $283,
500$ 0
$ 0
$110,640
$ 66,480
$ 49,68
0Payment of liabilities.. –
56,700
– 56,70
0Balance..................... $226,
800$ 0
Distribution of cash to partners..........
–226,8
00
–110,6
40–
66,480
– 49,68
0Balance..................... $
0$ 0
$ 0
$ 0
* $295,600 – $58,000 = $237,600; $270,000 – $237,600 = $32,400 gain$32,400 × 3/5 = $19,440 to Poppy$32,400 × 1/5 = $6,480 to Sweetbean and Olive
b.
Cash Equip.
Accum.
Amort.,
Equip.
A/P
Ernie Poppy
, Capit
al
Lynn SweetbeanCap
ital
Ned Olive, Capit
al
Account balances Oct. 15, 2011. . .
$ 13,500
$295,600 $
$ 56,70
$ 91,20
$ 60,000
$ 43,20
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.196 Fundamental Accounting Principles, Twelfth Canadian Edition
58,000 0 0 0
Sale of equipment for $170,100*.....
+170,100
–295,6
00
– 58,00
0
– 40,50
0–
13,500
– 13,50
0Balance................. $
183,600
$ 0
$ 0
$ 50,70
0
$ 46,500
$ 29,70
0Payment of liabilities –
56,700–
56,700
Balance................. $ 126,90
0
$ 0
Distribution of cash to partners.
–126,90
0
– 50,70
0–
46,500
–29,70
0Balance................. $
0$ 0
$ 0
$ 0
* $295,600 – $58,000 = $237,600; $170,100 – $237,600 = $67,500 loss$67,500 × 3/5 = $40,500 to Poppy$67,500 × 1/5 = $13,500 to Sweetbean and Olive
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 14 197
Problem 14-7B (continued)c.
Cash Equip.
Accum.
Amort.,
Equip.
A/P
Ernie Poppy, Capita
l
Lynn Sweetb
ean Capital
Ned Olive, Capit
al
Account balances Oct. 15, 2011. . .
$ 13,500
$ 295,600
$ 58,00
0
$ 56,70
0$
91,200 $
60,000
$ 43,20
0
Sale of equipment for $72,600*. .
+72,600
– 295,600
–58,00
0–
99,000 –
33,000
– 33,00
0Balance................. $
86,100$ 0
$ 0
$ (7,800
)
$ 27,000
$ 10,20
0Payment of liabilities...............
–56,700
–56,70
0Balance................. $
29,400$ 0
Poppy pays deficiency.............
+ 7,800
+ 7,800
$ 37,200
$ 0
Distribution of cash to partners................
–37,200
– 27,000
– 10,20
0Balance................. $
0$ 0
$ 0
* $295,600 – $58,000 = $237,600; $72,600 – $237,600 = $165,000 loss$165,000 × 3/5 = $99,000 to Poppy$165,000 × 1/5 = $33,000 to Sweetbean and Olive
d.
Cash Equip.
Accum. Amort.
, Equip.
A/P
Ernie Poppy, Capital
Lynn Sweetbe
an Capital
Ned Olive,
Capital
Account balances Oct. 15, 2011.
$ 13,500
$ 295,600
$58,000
$ 56,700
$ 91,200 $ 60,000
$43,200
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.198 Fundamental Accounting Principles, Twelfth Canadian Edition
Sale of equipment for $55,200*
+ 55,200
– 295,600
–58,000
–109,44
0 –36,480 –
36,480Balance............... $
68,700$ 0
$ 0
$ (18,24
0)
$ 23,520 $ 6,720
Payment of liabilities............
– 56,700
–56,700
Balance............... $ 12,000
$ 0
Allocation of deficiency**........
+ 18,240
– 9,120 – 9,120
$ 0
$ 14,400 $ (2,400)
Allocation of deficiency...........
– 2,400 + 2,400
$ 12,000 $ 0
Distribution of cash to partners.............
– 12,000 –12,000
Balance............... $ 0
$ 0
* $295,600 – $58,000 = $237,600; $55,200 – $237,600 = $182,400 loss $182,400 × 3/5 = $109,440 to Poppy $182,400 × 1/5 = $36,480 to Sweetbean and Olive
**$18,240 × 1/2 = $9,120 to Sweetbean and Olive
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 14 199
Problem 14-7B (concluded)
Part 22011
Oct. 15 Ernie Poppy, Capital..................................110,640
Lynn Sweetbean, Capital...........................66,480
Ned Olive, Capital.....................................49,680
Cash.................................................... 226,800
To record the final distribution of cash to the partners.
Problem 14-8B (30 minutes)a.2011Mar. 3
1Cash........................................... 450,00
0Accumulated Amortization........... 214,00
0 Property, Plant and Equipment..................................
389,000
Gain on Liquidation*.............. 275,000
To record sale of property, plant and equipment.
31
Gain on Liquidation..................... 275,000
Leslie Bjorn, Capital.............. 165,000
Jason Douglas, Capital........... 55,000 Tom Pierce, Capital............... 55,000 To record allocation of gain to partners’ equity; 275,000 x 3/5 = 165,000; 275,000 x 1/5 = 55,000.
31
Accounts Payable........................ 46,000
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.200 Fundamental Accounting Principles, Twelfth Canadian Edition
Cash..................................... 46,000 To record payment of liabilities.
31
Leslie Bjorn, Capital..................... 257,000
Jason Douglas, Capital................. 161,000
Tom Pierce, Capital...................... 65,000 Cash..................................... 483,00
0 To record final distribution of cash; Leslie Bjorn = 92,000 + 165,000 = 257,000; Jason Douglas = 106,000 + 55,000 = 161,000; Tom Pierce = 10,000 + 55,000 = 65,000; Cash = 79,000 + 450,000 – 46,000 = 483,000.
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 14 201
Problem 14-8B (continued)
*NOTE: Students may wish to combine the sale and allocation of gain as follows:
Mar. 31
Cash........................................... 450,000
Accumulated Amortization........... 214,000
Property, Plant and Equipment..................................
389,000
Leslie Bjorn, Capital.............. 165,000
Jason Douglas, Capital........... 55,000 Tom Pierce, Capital............... 55,000 To record sale of property, plant and equipment and allocation of gain to partners.
b.2011Mar. 3
1Cash........................................... 110,00
0Accumulated Amortization........... 214,00
0Loss on Liquidation **.................. 65,000 Property, Plant and Equipment..................................
389,000
To record sale of property, plant and equipment.
31
Leslie Bjorn, Capital..................... 39,000
Jason Douglas, Capital................. 13,000Tom Pierce, Capital...................... 13,000 Loss on Liquidation................. 65,000 To record allocation of loss; 65,000 x 3/5 = 39,000; 65,000 x 1/5 = 13,000.
31
Accounts Payable........................ 46,000
Cash..................................... 46,000Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.202 Fundamental Accounting Principles, Twelfth Canadian Edition
To record payment of liabilities.
31
Cash........................................... 3,000
Tom Pierce, Capital............... 3,000 To record payment of deficiency by Pierce; Tom Pierce, Capital = 10,000 – 13,000 = (3,000).
31
Leslie Bjorn, Capital..................... 53,000
Jason Douglas, Capital................. 93,000 Cash..................................... 146,00
0 To record final distribution of cash; Bjorn = 92,000 – 39,000 = 53,000; Douglas = 106,000 – 13,000 = 93,000; Cash = 79,000 + 100,000 – 46,000 + 3,000 = 146,000
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 14 203
Problem 14-8B (concluded)
**NOTE: Students may wish to combine the sale and allocation of gain as follows:
Mar. 31
Cash........................................... 110,000
Accumulated Amortization........... 214,000
Leslie Bjorn, Capital..................... 39,000Jason Douglas, Capital................. 13,000Tom Pierce, Capital...................... 13,000 Property, Plant and Equipment..................................
389,000
To record sale of property, plant and equipment and allocation of loss to partners.
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.204 Fundamental Accounting Principles, Twelfth Canadian Edition
A&R 14-1 (30 minutes)Loss from selling the assets:Total book value of assets................. $238,00
0 Total liabilities (before liquidation).. . $200,000 Total liabilities remaining after paying proceeds of asset sales to creditors..............
(45,000)
Cash proceeds from sale of assets... . (155,000)Loss on sale of assets*...................... $
83,000
*Alternative computation:1) $45,000 = $200,000 – Cash from assets sale (This implies cash from assets sale is $155,000)
2) Loss on sale of assets = Book value of assets – Cash received = $238,000 – $155,000 = $83,000
Prince Count Earl TotalCapital balances before loss liquidation $ 8,000 $
10,000$
20,000$
38,000Allocation of loss: $83,000 × 1/8.......... (10,375) $83,000 × 3/8.......... (31,125) $83,000 × 4/8..........
(41,50
0) (83,0
00)
Capital balances after loss..........................
$(2,375) $(21,125
) $(21,500) $(45,0
00)
Each partner should pay an amount equal to the debit balance in his or her capital account.
A&R 14-2 (30 minutes)Loss from selling the assets:Total book value of assets................. $238,0
00Total liabilities (before liquidation).... $200,00
0Total liabilities remaining after paying )Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 14 205
proceeds of asset sales to creditors...............
(45,000
Cash proceeds from sale of assets...... (155,000
)
Loss on sale of assets*....................... $ 83,000
*Alternative computation:1) $45,000 = $200,000 – Cash from assets sale (This implies cash from assets sale is $155,000)
2) Loss on sale of assets= Book value of assets – Cash received = $238,000 – $155,000 = $83,000A&R 14-2 (concluded)
Prince
Count Earl Total
Capital balances before loss liquidation $
8,000$
10,000$
20,000
$ 38,00
0Allocation of loss: $83,000 × 1/8.......... (10,3
75)
$83,000 × 4/8.......... (31,125
) $83,000 × 5/8..........
(41,5
00) (83,0
00)
Capital balances after loss...........................
$(2,375
) $(21,125
) $(21,500
) $(45,000
)
Allocation of Earl’s deficit $21,500 × 1/4 (5,37
5)
$21,500 × 3/4 (16,125) 21,50
0Cash to be paid to each partner
$(7,750
) $(37,250
) $ 0
$(45,000
)
Liability to be paid:
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.206 Fundamental Accounting Principles, Twelfth Canadian Edition
As a limited partner, Earl has no personal liability for the $45,000 liability. Therefore, Prince and Count must share the additional loss associated with Earl’s capital account.A&R 14-3
Part 1Scott McPee
kTotal
Net income................................ $72,000
First $60,000: Scott ....................................... $24,0
00 McPeek.................................... $36,0
00 Total interest allowances............ 60,00
0 Balance of income...................... $12,00
0 Balance allocated equally: Scott........................................ 6,000 McPeek.................................... 6,000 Total allocated equally............... Balance of income...................... _______ _______ 12,00
0 Shares of the partners................ $30,0
00$42,0
00$ -
0-
Part 2
a.Dec.
31Scott, Capital.................................. 40,00
0McPeek, Capital.............................. 40,00
0 Accounts Payable...................... 80,000 Entry to incorporate McPeek’s suggestion
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 14 207
A&R 14-3 (concluded) Part 2B.
Dec. 31
Scott, Capital.................................. 34,000
McPeek, Capital.............................. 46,000
Accounts Payable...................... 80,000 Entry to incorporate Scott’s suggestion
Supporting calculations:Scott McPeek
Credits to capital accounts for 2011, net income of $72,000.................. $30,0
00$42,00
0Debits that would have been made if $80,000 of additional expense had beenrecognized in 2011 {($72,000 – $80,000/2)}..............................................
4,000 4,000
Debits needed to correct capital accounts.. $34,000
$46,000
Part 3
Scott’s suggestion appears to be consistent with the partnership agreement. Because the accounts payable were in fact liabilities of the partnership on Dec. 31, 2011 they should have been recognized at that date. In addition, the expenses that created them should have been included in the calculation of net loss for 2011. There would not be an adequate justification for treating the correction of the error as a special charge against capital in 2011.
As a matter of equitability, notice that Scott’s capital account would be $6,000 lower under McPeek’s suggestion, and McPeek’s would be larger by the same amount.
ETHICS CHALLENGE
Since the net assets approximate $1,500,000, Paul is entitled to 1/3 of this amount. The assets should be revalued to Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.208 Fundamental Accounting Principles, Twelfth Canadian Edition
reflect their market value, and $500,000, not $300,000, should be distributed to Paul. Not to do so is clearly unethical on the part of Frank and Basil. The net assets should be revalued by $600,000, resulting in an additional $200,000 credit to each partner’s capital account before Paul’s retirement.
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 14 209
Focus on Financial Statements
FFS 14-1
WCL SalesBalance Sheet
December 31, 2011Assets Current assets: Cash........................................... $14,0
00 Accounts receivable.................... $46,0
00 Less: Allowance for doubtful accounts...........................................
1,20 0
44,800
Merchandise inventory................ 22,000
Prepaid rent............................... 36,0 00
Total current assets................... $116,800
Property, plant and equipment: Furniture.................................... $69,0
00 Less: Accumulated amortization 6,00
0$63,0
00 Fixtures...................................... $31,0
00 Less: Accumulated amortization.....................................
3,00 0
28,00 0
Total property, plant and equipment........................................
91,000
Intangible assets: Patent (net)................................ 14,0
00Total assets...................................... $221,
800
Liabilities Current liabilities: Accounts payable........................ $14,0
00 Unearned sales........................... 3,000 Current portion of long-term debt.................................................
7,0 00
$24,000
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.210 Fundamental Accounting Principles, Twelfth Canadian Edition
Total current liabilities............ Long-term liabilities: Notes payable, due 2014 (less $7,000 current portion).....................
27,0 00
Total liabilities............................... $ 51,00
0Partners’ Equity* Les Waruck, capital........................ $26,2
00 Kim Chau, capital........................... 91,92
0 Leena Manta, capital...................... 52,6
80 Total partners’ capital.................... 170,8
00Total liabilities and partners’ equity. . $
221,800
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 14 211
FFS 14-1 (continued)
*Calculations:
Calculation to determine distribution of $48,200 net loss:Waruck Chau Manta Total
Net loss................................. $ (48,200
)Salary allowances................... $
40,000$
80,000$
40,000 –
160,000
Balance of net loss over-allocated................................
$(208,200)
Balance allocated on ratio of beginning- of-period capital balances: Waruck [$208,200 x (68,250/273,000)]...................
(52,050)
Chau [$208,200 x (109,200/273,000)].................
(83,280)
Manta [$208,200 x (95,550/273,000)]...................
(72,87 0)
Total allocated on ratio of capital balances.............................
208, 200
Balance of net loss................. $ -0-
Allocation of net loss to each partner...........................
$(12,050)
$ (3,280)
$(32,870)
$ (48,200
)
Calculation to determine partners’ capital balances at December 31, 2011:
Waruck
Chau Manta Total
Capital balance at January 11, 2011.....................................
$68,250
$109,200
$95,550
$273,000
Allocation of net loss to partners’ capital....................
– 12,050
– 3,280
– 32,870
– 48,200
Partners’ withdrawals during the year................................
– 30,000
– 14,000
– 10,000
– 54,000
Capital balance at December $26,20 $ $52,68 $170,8Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.212 Fundamental Accounting Principles, Twelfth Canadian Edition
31, 2011............................... 0 91,920 0 00
Analysis component:WCL’s assets are financed 22.99% ($51,000/$221,800) by debt and 77.01% ($170,800/$221,800) by equity which compares favourably to the industry average of 60% and 40%, respectively. The relationship between type of financing and risk is that the greater the debt, the greater the risk. Therefore, WCL faces less risk in terms of debt financing relative to the industry average.
NOTE TO INSTRUCTOR: You may wish to point out to students that although WCL’s debt is low relative to the industry average, it may also indicate that they are not taking advantage of financial leveraging opportunities to grow the business … there are both positives and negatives associated with debt financing.
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 14 213
FFS 14-21. Danier is a corporation because the equity section on the
balance sheet is called Shareholders’ equity, a term restricted for corporate equity. On the income statement, income taxes have been deducted, indicating that Danier is a separate legal entity. Corporations are separate legal entities but sole proprietorships and partnerships are not.
2. WestJet is a corporation because the equity section on the balance sheet is called Shareholders’ Equity, a term restricted for corporate equity. On the income statement, income taxes have been deducted, indicating that WestJet is a separate legal entity. Corporations are separate legal entities but sole proprietorships and partnerships are not.
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.214 Fundamental Accounting Principles, Twelfth Canadian Edition
Critical Thinking Mini Case
CT 14-1
Note to instructor: Student responses will vary therefore the answer here is only suggested and not inclusive of all possibilities; it is presented in point form for brevity.Problem:
— how to get an additional $200,000 in financing
Goal*:— to get an additional $200,000 in financing (from the
perspective of the Mooth brothers, they will want financing that provides them with the greatest benefits at the least cost possible)
Principles:— incorporate cost/benefit principles (lowest cost with greatest benefit)
Facts:— as provided in the case study
Conclusions/Consequences:— The Mooth brothers could take on an additional
partner(s) but that partner(s) will want to share in the benefits realized by the partnership as a result … a mutually agreeable sharing agreement will have to be arrived at.
— The Mooth brothers could borrow the money which means interest costs will be incurred but then they won’t have to share in any benefits realized by the partnership
— This point has not yet been covered but more advanced students might raise the point: The Mooth brothers could issue preferred and/or common shares (issuing preferred shares would allow them to maintain control of the business).
*The goal is highly dependent on “perspective.”
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 14 215