Refer To: 14-68
1.
Eden contributes $49,000 into the partnership for a 25% interest. The four original partners share profits
and losses equally. Using the bonus method, determine the balances for each of the five partners after
Eden joins the partnership.
2.
Eden contributed $124,000 in cash to the business to receive a 20% interest in the partnership. Goodwill
was to be recorded. The four original partners shared all profits and losses equally. After Eden made his
investment, what were the individual capital balances?
3.
Eden acquired a 20% interest in the partnership by contributing a total of $71,500 directly to the other
four partners. No goodwill is to be recorded. Profits and losses have previously been split according to
the following percentages: Adams, 15%, Barnes, 35%, Cordas, 30% and Davis, 20%. After Eden made
his investment, what were the individual capital balances?
4.
Eden acquired a 20% interest in the partnership by contributing a total of $71,500 directly to the other
four partners. Goodwill is to be recorded. Profits and losses have previously been split according to the
following percentages: Adams, 15%, Barnes, 35%, Cordas, 30% and Davis, 20%. After Eden made his
investment, what were the individual capital balances?
1
5.
James, Keller and Rivers have the following capital balances; $48,000, $70,000 and $90,000
respectively. Because of a cash shortage James invests an additional $12,000 on June 1st. Each partner
withdraws $1,000 per month. James, Keller and Rivers receive a salary of $13,000, $15,000 and $20,000,
respectively, for work done during the year. Each partner receives interest of 8% on their weighted
average capital balance without regard to normal drawings. Any remaining profits are split 20%, 30%
and 50% respectively. The net income for the year is $30,000. What are the ending capital balances for
each partner?
2
On January 1, 2009, the partners of Won, Cadel and Dax (who shared profits and losses in the ratio of
5:3:2, respectively) decided to liquidate their partnership. The trial balance at this date was as follows:
The partners planned a program of piecemeal conversion of the business assets to minimize liquidation
losses. All available cash, less an amount retained to provide for future expenses, was to be distributed to
the partners at the end of each month. A summary of liquidation transactions follows:
6.
Prepare a schedule to calculate the safe installment payments to be made to the partners at the end of
January.
3
7.
Prepare a schedule to calculate the safe installment payments to be made to the partners at the end of
February.
8.
Prepare a schedule to calculate the safe installment payments to be made to the partners at the end of
March.
4
Hardin, Sutton and Williams has operated a local business as a partnership for several years. All profits
and losses have been allocated on a 3:2:1 ratio, respectively. Recently, Williams has undergone personal
financial problems and is insolvent. To satisfy Williams' creditors, the partnership has decided to
liquidate.
The following balance sheet has been produced:
During the liquidation process, the following transactions take place:
- Non-cash assets are sold for $116,000.
- Liquidation expenses of $12,000 are paid. No further expenses are expected.
- Safe capital distributions are made to the partners.
- Payment is made of all business liabilities.
- Any deficit capital balances are deemed to be uncollectible.
9.
Develop a pre-distribution plan for this partnership, assuming $12,000 of liquidation expenses are
expected to be paid.
10. Compute safe cash payments after the non-cash assets have been sold and the liquidation expenses have
been paid.
11. Prepare journal entries to record the actual liquidation transactions.
5
Mount Inc. was a hardware store that operated in Boise, Idaho. Management made some poor inventory
acquisitions that loaded the store with unsalable merchandise. Due to the decline in revenues, the
company became insolvent. Following is a trial balance as of March 15, 2009, the day the company filed
for a chapter 7 liquidation.
Company officials believed that sixty percent of the accounts receivable could be collected if the
company was liquidated. The building and land had a fair value of $97,500, while the equipment was
worth $24,700. The investments represented shares of a nationally traded company that could be sold at
the time for $27,300. The entire inventory could be sold for only $42,900. Administrative expenses
necessary to carry out a liquidation would have approximated $20,800.
6
12. Required: Prepare a statement of financial affairs for Mount Inc. as of March 15, 2009.
13. Assume that the company was being liquidated and that the following transactions occurred:
Accounts receivable of $23,400 were collected.
All of the company's inventory was sold for $52,000.
Additional accounts payable of $13,000 incurred for various expenses such as utilities and maintenance
were discovered.
The land and building were sold for $92,300.
The note payable due to the Idaho Savings and Loan was paid.
The equipment was sold at auction for only $14,300 with the proceeds applied to the note owed to the
Second National Bank.
The investments were sold for $27,300.
Administrative expenses totaled $26,000 as of July 26, 2009, but no payment had yet been made.
Required:
Prepare a statement of realization and liquidation for the period from March 15 through July 26, 2009.
14. How much cash would have been paid to an unsecured, non-priority creditor who was owed a total of
$1,300 by Mount Inc.? (Round the payout percentage to a whole number).
7
A company that was to be liquidated had the following liabilities:
The company had the following assets:
15. Total free assets available for all unsecured liabilities are calculated to be what amount?
16. Total liabilities with priority are calculated to be what amount?
17. Required: Free assets after payment of liabilities with priority are calculated to be what amount?
8
18. Total unsecured liabilities are calculated to be what amount?
19. Total payment on notes payable is calculated to be what amount? (Round the payout percentage to one
decimal place).
20. What amount will Coyote Corp. report on its 2009 financial statements for Inventory?
21. What amount will Coyote Corp. report on its 2009 financial statements for Cost of Goods Sold?
22. What amount will Coyote Corp. report on its 2009 financial statements for Sales?
23. What amount will Coyote Corp. report on its 2009 financial statements for Accounts Receivable?
24. What amount will Coyote Corp. report on its 2009 financial statements for Accounts Payable?
25. The beginning balance of cash was 50,000 pesos on January 1, 2009, translated at $.18 = $1. What
amount will Coyote Corp. report on its 2009 financial statements for Cash?
9
On November 10, 2008, King Co. sold inventory to a customer in a foreign country. King agreed to
accept 96,000 local currency units (LCU) in full payment for this inventory. Payment was to be made on
February 1, 2009. On December 1, 2008, King entered into a forward exchange contract wherein 96,000
LCU would be delivered to a currency broker in two months. The two month forward exchange rate on
that date was 1 LCU = $.30. The spot rates and forward rates on various dates were as follows:
The company's borrowing rate is 12%. The present value factor for one month is .9901.
26. (A.) Assume this hedge is designated as a cash flow hedge. Prepare the journal entries relating to the
transaction and the forward contract.
(B.) Compute the effect on 2008 net income.
(C.) Compute the effect on 2009 net income.
27. (A.) Assume this hedge is designated as a fair value hedge. Prepare the journal entries relating to the
transaction and the forward contract.
(B.) Compute the effect on 2008 net income.
(C.) Compute the effect on 2009 net income.
10
28. On October 31, 2008, Darling Company negotiated a two-year 100,000 franc loan from a foreign bank at
an interest rate of 3 percent per year. Interest payments are made annually on October 31 and the
principal will be repaid on October 31, 2010. Darling prepares U.S.-dollar financial statements and has a
December 31 year-end. Prepare all journal entries related to this foreign currency borrowing assuming
the following:
11
Ginvold Co. began operating a subsidiary in a foreign country on January 1, 2008 by acquiring all of the
common stock for §50,000. This subsidiary immediately borrowed §120,000 on a five-year note with ten
percent interest payable annually beginning on January 1, 2008. A building was then purchased for
§170,000. This property had a ten-year anticipated life and no salvage value and was to be depreciated
using the straight-line method. The building was immediately rented for three years to a group of local
doctors for §6,000 per month. By year-end, payments totaling §60,000 had been made. On October 1,
§5,000 were paid for a repair made on that date. A cash dividend of §6,000 was transferred back to
Ginvold on December 31, 2008. The functional currency for the subsidiary was the stickle. Currency
exchange rates were as follows:
29. Prepare an income statement for this subsidiary in stickles and then translate these amounts into U.S.
dollars.
30. Prepare a statement of retained earnings for this subsidiary in stickles and then translate these amounts
into U.S. dollars.
31. Prepare a balance sheet for this subsidiary in stickles and then translate these amounts into U.S. dollars.
12