Ch 12 - Accounting for Partnerships Flashcards
On June 1, E. Brown and E. Black decide to organize a partnership B&B painting. Brown contributes equipment with a cost of $5000 and 2000 accumulated depreciation. Black contributes accounts receivable of 1200. Both agree that the equipment has a fair value of 2500 and the AR have a net realizable value of 1000. Black will also contribute the amount of cash required to make his investment equal to Browns.
A) How much cash will Black contribute?
B) Journalize the investments in the partnership
Brown:
Fair value of equip 2500
Less: fair value of AR by black
investment from black: $1500
B
Equipment 2500
E. Brown, capital 2500
Cash 1500
Accounts receivable 1200
Allowance for doubtful accounts 200
E. Black, capital 2500
Profit and loss ratios - Fixed ratio.
How to convert a ratio to a fraction for this?
ie Black, Brown, and white own 3:2:1 respectively.
Ownership expressed as a proportion (2:1), a percentage (67% and 33%) or a fraction 2/3 and 1/3
- determine the denominator for the fractions (add all up).
- take the number and add it to the fraction.
3: 2:1 = 6. 3/6; 2/6; 1/6
If a Company suffers a profit loss, how are partnership salaries and interest allowance handled and what happens with the loss?
You would still calculate/pay out the salaries and interest allowance as scheduled. You would then split the deficiency like you would remaining profit - either equally if not specified or per profit/loss ratios.
LeMay reports profit of $72,000 for the year ended May 31, 2017. The partnership agreement specified (1) salary allowances of $30,000 for L.Leblanc and $24,000 for R. May (2) an interest allowance of 4% based on average capital account balances, and (3) sharing any remainder on a 60:40 basis (60 leblanc 40 may). Average capital account balances for the year were $40,000 for leblanc and 30,000 for may.
A) Prepare a statement showing the allocation of profit to the partners. Indicate ending balance of capital. Assume no drawings were made
B) Prepare the closing entry for profit
Leblanc May Total
Net income $72,000
Salaries $30,000 $24,000 54,000
Interest @ 4% 1,600 1,200 2,800
Profit remaining for allocation 15,200
Share of remaining profit
(60%) 9,120 (40%)6,080 15,200
Beginning capital 40,000 30,000
Capital, May 31,17 $80,720 $61,280
Income Summary 72,000
L. Leblanc, capital 40,720
R. May, capital 31,280
The capital accounts of Mindy Dawson and Rania Alam, partners in Best Skate Company, had balances of $80,000 and $95,000, respectively on Jan 1, 2017. During the year, Dawson invested an additional $15,000 and each partner withdrew $50,000. Profit for the year was $150,000 and was shared equally between partners. Prepare a statement of partner’s equity for the year ended Dec 31, 2017
BEST SKATE COMPANY
Statement of Partner’s Equity
Year ended dec 31, 2017
M. Dawson R. Alam Total
Capital, Jan 1 $80,000 $95,000 $175,000
Add: Investment 15,000 0 15,000
Add: Profit 75,000 75,000 150,000
170,000 170,000 340,000
Less: Drawings (50,000) (50,000) (100,000)
Capital Dec 31 $120,000 $120,000 $240,000
The capital accounts of Mindy Dawson and Rania Alam, partners in Best Skate Company, had balances of $80,000 and $95,000, respectively on Jan 1, 2017. During the year, Dawson invested an additional $15,000 and each partner withdrew $50,000. Profit for the year was $150,000 and was shared equally between partners. Prepare a statement of partner’s equity for the year ended Dec 31, 2017
BEST SKATE COMPANY
Statement of Partner’s Equity
Year ended dec 31, 2017
M. Dawson R. Alam Total
Capital, Jan 1 $80,000 $95,000 $175,000
Add: Investment 15,000 0 15,000
Add: Profit 75,000 75,000 150,000
170,000 170,000 340,000
Less: Drawings (50,000) (50,000) (100,000)
Capital Dec 31 $120,000 $120,000 $240,000
If Carson invested $30,000 in cash to the company instead for 1/3 capital interest, how would it be journalized? Arbour and Baker both had capital of $30,000.
Cash 30,000
L. Carson, capital 30,000
Bonus to Old partners (when adding a new partner)
Nov 1, Peart-Huang partnership has total partnership capital of $120,000. Peart has a capital of 72,000 and huang 48,000. Peart has 60% and huang 40%.
They agree to admit Trent to a 25% ownership in exchange for cash investment of $80,000.
- Determine total capital of new partnership
72,000 + 48,000 + 80,000 = 200,000. - Determine the new partners capital credit. Multiply total capital of new partnership x new partnerships interest. 200,000 x 25% = 50,000.
- Determine amount of bonus. Subtract new capital credit from new partners investment. (80,000-50,000 = 30,000).
- Allocate the bonus to the old partners no the basis of their income ratios before admission of new partner.
Peart 18,000 (30k x 60%) Huang 12,000 (30k x 40%).
Journal entry for new partnership. Cash investment of 80,000 by Trent. Trent has $50,000 capital, Peart 18,000 bonus, Huang 12,000 bonus.
Cash 80,000
Peart, capital 18,000
Huang, capital 12,000
Trent, capital 50,000
Journal entry for new partnership. Cash investment of 80,000 by Trent. Trent has $50,000 capital, Peart 18,000 bonus, Huang 12,000 bonus.
Cash 80,000
Peart, capital 18,000
Huang, capital 12,000
Trent, capital 50,000
John, Kim, and Vin have capital balances of $25,000, $15,000, and $10,000. Partnership equity total $50,000. John and Kim agree to buy out Vins interest. They agree to personally pay Vin $8000 for one half of Vins $10000 total interest. Journalize
Vin, capital 10,000
John,capital 5000
Kim, capital 5000
Hossein, Belanger, and Laurin have a partnership where they share profit/loss equally. There is a $40,000 balance in each capital account. Record the JE for Mar 1 for each of the independent events below:
A) Laurin withdraws from the partnership. Hossein and Belanger pa Laurin $25,000 out of their personal assets
B) Laurin withdraws from the partnership and is paid $30,000 of partnership cash
Laurin, capital 40,000
Belanger, capital 20,000
Hossein, capital 20,000
B) Laurin, capital 40,000
Cash 30,000
Hossein, capital 5,000 (bonus)
Belanger, capital 5,000 (bonus)
Hossein, Belanger, and Laurin have a partnership where they share profit/loss equally. There is a $40,000 balance in each capital account. Record the JE for Mar 1 for each of the independent events below:
A) Laurin withdraws from the partnership. Hossein and Belanger pa Laurin $25,000 out of their personal assets
B) Laurin withdraws from the partnership and is paid $30,000 of partnership cash
Laurin, capital 40,000
Belanger, capital 20,000
Hossein, capital 20,000
B) Laurin, capital 40,000
Cash 30,000
Hossein, capital 5,000 (bonus)
Belanger, capital 5,000 (bonus)
Which of the following is not a characteristic of a partnership? A) Taxable entity B) co-ownership of property C) mutual agency D) Limited life
A taxable entity
Brianna and Stephan are combining their two proprietorships to form a partnership. Brianne’s proprietership has $8000 of accounts receivable and an allowance for doubtful accounts of 2000. The partners agree that the fiar value of the AR is 4800. The entry that the partnership makes to record Brianne’s initial contribution includes a:
A) debit to AR for 8000
B) debit to AR for 4800
C) debit to Bad Debt expense for 200
D) credit to Allowance for doubtful accounts for 200
A ) debit to AR for 8000
