BAT4M Accounting
Chapter 13: Partnerships
Mr. Ruston
ACCOUNTING FOR PARTNERSHIPS
Chapter 13 Outline
Focused study objectives:
1.
Describe the characteristics of the partnership form of business organization.
2.
Describe and generate the accounting entries for the formation of a partnership.
3.
Apply various bases to divide net income or net loss.
4.
Describe and illustrate the form and content of partnership financial statements.
5.
Prepare and explain the effects of the entries when a new partner is admitted.
6.
Prepare and explain the effects of the entries when a partner withdraws from the firm.
7.
Prepare the entries to record the liquidation of a partnership.
Study
Objective
1
Textbook
Pages to
Read
p. 604-609
2
To Do:
Questions
Brief Exercises
Exercises
Problems
1
1
1
x
p. 609-611
5
2
2
3
3
p. 611-614
9
4,5
3
x
4
p.614-616
x
7
4
3 (w/ obj #2)
5
p. 616-620
12, 13
8,9
5 or 6
6
6
p. 620-623
14
10
7 or 8
7
7
p. 624-627
20
12
9
9
Use the text info and the powerpoint handout package to help you
complete the questions.
Solutions will be posted in class and online.
BAT4M Accounting
Chapter 13: Partnerships
Mr. Ruston
Study Objective #1
Question 1.
(a)
Association of individuals. A partnership is simply a voluntary association of
two or more individuals. Although a written agreement is preferable, a simple
handshake can be the basis for a partnership.
(b)
Limited life. A partnership does not have unlimited life. A partnership may be
ended voluntarily or involuntarily. Thus, the lifespan of a partnership is
uncertain. Any change in the number of partners results in the dissolution of the
partnership.
(c)
Co-ownership of property. Partnership assets are jointly owned by all
partners. If the partnership is terminated, the assets do not legally revert to
original contributor. Each partner has a claim on total assets equal to his or
capital balance. This claim does not attach to any specific assets which
individual partner contributed to the firm.
BE #1
(a)
4 (b) 5 (c) 8 (d) 1 (e) 7 (f)
2 (g)
3(h)
the
the
her
the
6
EXERCISE 13-1
1.
2.
3.
Since Angelique and Esther are only planning on operating the business for the
summer a partnership would probably be the best form of business organization.
A partnership is easy to form and relatively free from government regulation
and restriction which would make it easy for the girls to operate during their
vacation.
Since Joe and Cathy will need to raise funds in the next year it would probably
be advisable for them to operate their business as a corporation. A partnership
has more difficulty raising capital and its partners do not enjoy unlimited
liability. If the business were to find itself in financial difficulty, Joe and Cathy
would be held personally liable for the debt of the business if they were to
operate it as a partnership.
A partnership would work for these professors but to avoid liability resulting
from the negligence of the other partners, a limited liability partnership may be
the best form of organization for this business.
Study Objective #2
Q5. The capital balance should be $162,000, comprised of land and building $125,000,
less debt $20,000 and equipment $57,000.
BRIEF EXERCISE 13-2
July 10
Cash.......................................................................................................
Equipment .............................................................................................
B. Panos, Capital ......................................................................
10
Cash
...................................................................................................
R. Alfredo, Capital.....................................................................
Ex #2 Jan.1 Cash .....................................................................................................
Accounts Receivable .............................................................................
Equipment ..............................................................................................
Allowance for Doubtful Accounts...............................................
Ted Karl, Capital ..........................................................................
10,000
6,000
16,000
15,000
15,000
15,000
14,000
17,000
4,000
42,000
BAT4M Accounting
Chapter 13: Partnerships
Mr. Ruston
PROBLEM 13-3A
INTERPLAY@ PARTNERSHIP
Balance Sheet
June 30, 2003
Assets
Current assets
Cash ($9,000 + $1,000) .................................................................................
Accounts receivable ................................................................
$18,000
Less: Allowance for doubtful accounts ................................... ......... 1,500
Total current assets..............................................................................
Capital assets
Computer hardware and software ..................................................................
Total assets..........................................................................................
Liabilities and Partners' Equity
Current liabilities
Notes payable ................................................................................................
Accounts payable...........................................................................................
Total current liabilities...........................................................................
Partners' equity
3D Gaming, Capital .......................................................................................
G. LeBlanc, Capital .......................................................................................
Total partners' equity ............................................................................
Total liabilities and partners' equity.......................................................
$10,000
16,500
26,500
015,000
$41,500
$25,000
0015,000
0040,000
Study Objective #3
Question 9.
Division of Net Income
R. Rowe
Salary allowance
Remaining income: $5,000
($60,000 – $55,000)
R. Rowe (60% X $5,000)
B. Zander (40% X $5,000)
Division of net income
B. Zander
Total
$30,000
$25,000
$55,000
3,000
0
00
$33,000
2,000
$27,000
3,000
2,000
$60,000
Division of Net Income
R. Rowe
Salary allowance
Remaining income: ($5,000)
($50,000 – $55,000)
R. Rowe (60% X $5,000)
B. Zander (40% X $5,000)
Division of net income
B. Zander
Total
$30,000
$25,000
$55,000
(3,000)
0
00
$27,000
(2,000)
$23,000
(5,000)
$50,000
500
001,000
001,500
$41,500
BAT4M Accounting
Chapter 13: Partnerships
Mr. Ruston
BRIEF EXERCISE 13-4
March 31
Income Summary .............................................................................
Brung, Capital .........................................................................
Rohls, Capital..........................................................................
* Brung, $42,000 ($70,000 X 60%) **Rohls, $28,000 ($70,000 X 40%)
70,000
42,000*
28,000**
BRIEF EXERCISE 13-5
Division of Net Income
Moses
Salary allowance
Remaining income, $40,000
($60,000 – $20,000)
Moses ($40,000 X 50%)
Eaton ($40,000 X 30%)
Talty ($40,000 X 20%)
Total remainder
Division of net income
EXERCISE 13-3
(a)
(1)
$10,000
Eaton
$05,000
Talty
Total
$05,000
$20,000
008,000
000,000
$13,000
40,000
$60,000
020,000
012,000
000,000
$30,000
000,000
$17,000
HUMA AND HOW
Division Of Net Income
For the Year Ended June 30, 2003
R. Huma
W. How
Salary allowance................................................................
$20,000
Interest allowance
R. Huma ($50,000 X 10%) ................................ 005,000
W. How ($40,000 X 10%) ................................
Total interest .........................................................
0 00
Total salaries and interest ..........................................................
25,000
Remaining income, $14,000
($55,000 – $41,000)
R. Huma ($14,000 X 70%) ................................
9,800
W. How ($14,000 X 30%) ................................
Total remainder.....................................................
0 00000
Division of net income ................................................................
$34,800
(2)
HUMA AND HOW
Division Of Net Income
For the Year Ended June 30, 2003
R. Huma
Salary allowance ................................................................$20,000
Interest allowance
005,000
Total salaries and interest ..........................................................
025,000
Remaining deficiency, ($11,000)
($30,000 – $41,000)
R. Huma ($11,000 X 70%)................................
(7,700)
W. How ($11,000 X 30%) ................................
Total remainder ................................
0000 00
Division of net income ................................................................
$17,300
W. How
Total
$12,000
$32,000
004,000
000
016,000
0 9,000
041,000
004,200
000 000
$20,200
014,000
$55,000
Total
$12,000
0 4,000
016,000
$32,000
0 9,000
041,000
0(3,300)
$12,700
(11,000)
$30,000
BAT4M Accounting
Chapter 13: Partnerships
Mr. Ruston
EXERCISE 13-3 (Continued)
(b)
(1) June 30
Income Summary ................................................................
R. Huma, Capital .......................................................
W. How, Capital ........................................................
(2)
June 30
Income Summary ................................................................
R. Huma, Capital .......................................................
W. How, Capital ........................................................
55,000
34,800
20,200
30,000
17,300
12,700
Study Objective 4
BRIEF EXERCISE 13-7
DRS. JARRATT AND BRAMSTRUP
Income Statement
For the Year Ended April 30, 2003
Fee revenue.................................................................
$60,000
Operating expenses .....................................................
Net income...................................................................
50,000
$10,000
DRS. JARRATT AND BRAMSTRUP
Statement of Partners' Capital
For the Year Ended April 30, 2003
Jarratt
Bramstrup
Capital, May 1 ..................................................... $10,000
Add: Net income................................................ 0 5,000
015,000
Less: Drawings .................................................. 0 5,000
Capital, April 30................................................... $10,000
DRS. JARRATT AND BRAMSTRUP
Balance Sheet
April 30, 2003
$15,000
005,000
020,000
095,000
$15,000
Assets
Current assets
Cash ..................................................................
Capital assets...........................................................
Equipment..........................................................
Less: Accumulated amortization.........................
Total assets..............................................................
Liabilities and Partners’ Equity
Current liabilities
Notes payable ....................................................
$50,000
15,000
Partners’ equity
Jarratt, Capital....................................................
Bramstrup, Capital..............................................
Total liabilities and partners’ equity...........................
$10,000
15,000
Total
$25,000
010,000
835,000
010,000
$25,000
$10,000
35,000
$45,000
$20,000
25,000
$45,000
BAT4M Accounting
Chapter 13: Partnerships
Mr. Ruston
EXERCISE 13-4
(a)
SCHOTT CO.
Statement of Partners' Capital
For the Year Ended December 31, 2003
Capital, January 1
Add: Net income
Less: Drawings
Capital, December 31
M. Salz
C. Toni
Total
$20,000
015,000
035,000
008,000
$27,000
$18,000
015,000
033,000
003,000
$30,000
$38,000
030,000
068,000
011,000
$57,000
(b)
SCHOTT CO.
Partial Balance Sheet
December 31, 2003
Total liabilities.......................................................................................
Partners' equity
M. Salz, Capital .........................................................................
C. Toni, Capital .........................................................................
Total partners' equity .......................................................
$XXXX
$27,000
30,000
57,000
Total liabilities and partners' equity ......................................................
$XXXX
Study Objective #5
12.
Partnership net assets increase $25,000. No, R. Minoa does not necessarily acquire a
1/6 income ratio. Unless stated otherwise, net income or net loss is divided evenly.
13.
R. Robichaud, Capital .......................................................................................
L. Leger, Capital........................................................................................
63,000
63,000
BRIEF EXERCISE 13-8
June 9
Carter, Capital ........................................................................................
Dutton, Capital ..............................................................................
BRIEF EXERCISE 13-9
Oct. 1 Cash
42,000
Edie, Capital (50% X $8,400*) ...............................................................
Zane, Capital (50% X $8,400) ...............................................................
Kerns, Capital (45% X $112,000)
10,000
10,000
4,200
4,200
50,400
BAT4M Accounting
Chapter 13: Partnerships
Mr. Ruston
* [($40,000 + $30,000 + $42,000) X 45%] – $42,000 = $8,400
EXERCISE 13-5
(a)
July 1 T. Halo, Capital .......................................................................................
R. Zahn, Capital ...................................................................
(b)
1
(c)
1
15,000
15,000
K. Rose, Capital ............................................................................
R. Zahn, Capital ...................................................................
13,000
J. Lamp, Capital ............................................................................
R. Zahn, Capital ...................................................................
6,000
13,000
6,000
EXERCISE 13-6
(a)
Jan. 1 Cash .........................................................................................100,000
Joe Keho, Capital (6/10 X $35,000)......................................
Mike McLain, Capital (4/10 X $35,000) .................................
Ed Kehler, Capital ................................................................
Total capital of existing partnership ...................................
Investment by new partner, Kehler ....................................
Total capital of new partnership.........................................
$160,000
00100,000
$260,000
Kehler's capital credit (25% X $260,000) ...........................
$65,000
Investment by new partner, Kehler ....................................
Kehler's capital credit ........................................................
Bonus to old partners ........................................................
$100,000
0 65,000
$ 35,000
21,000
14,000
65,000
PROBLEM 13-6A
(a)
1.
2.
3.
May 1 W. Matt, Capital.............................................................................
N. Ortiz, Capital...........................................................
May
1
May 1 Cash
K. Lester, Capital..................................................................
N. Ortiz, Capital...........................................................
35,000
V. Easi, Capital ($15,000 X 3/6)............................................
K. Lester, Capital ($15,000 X 2/6).........................................
W. Matt, Capital ($15,000 X 1/6)...........................................
N. Ortiz, Capital...........................................................
Total capital of existing partnership .................................
Investment by Ortiz .........................................................
Total capital of new partnership.......................................
$090,000
0035,000
$125,000
Ortiz's capital credit ($125,000 X 40%)............................
$50,000
Investment by new partner, Ortiz .....................................
Ortiz's capital credit .........................................................
Bonus to new partner ......................................................
$35,000
0050,000
$15,000
8,500
8,500
12,000
12,000
7,500
5,000
2,500
50,000
BAT4M Accounting
Chapter 13: Partnerships
Mr. Ruston
PROBLEM 13-6A (Continued)
(a) (Continued)
4.
May 1 Cash
30,000
V. Easi, Capital ($12,000 X 3/6)...................................
K. Lester, Capital ($12,000 X 2/6)................................
W. Matt, Capital ($12,000 X 1/6)..................................
N. Ortiz, Capital...........................................................
(b)
(1)
(2)
Total capital of existing partnership ..............................
Investment by Ortiz ......................................................
Total capital of new partnership....................................
$090,000
0030,000
$120,000
Ortiz's capital credit ($120,000 X 15%).........................
$18,000
Investment by new partner, Ortiz ..................................
Ortiz's capital credit ......................................................
Bonus to old partners ...................................................
$30,000
18,000
$12,000
Total capital after admission ($18,000 ÷ 15%) ........................................
Total capital before admission ................................................................
Cash investment by Ortiz .......................................................................
6,000
4,000
2,000
18,000
0
Bonus to Matt ($18,000 – $17,000) .......................................................
Matt’s % ownership before ($17,000 ÷ $90,000) ....................................
Total bonus ($1,000 ÷ 19%) ...................................................................
$120,000
90,000
$ 30,000
$1,000
19%
$5,263
Study Objective #6
Q14. Won Jang, Capital .............................................................................................
Karen Crest, Capital ..................................................................................
37,000
37,000
BRIEF EXERCISE 13-10
Dec. 31
Boyd, Capital..........................................................................................
Ditka, Capital.................................................................................
Embs, Capital................................................................................
25,000
12,500
12,500
EXERCISE 13-7
1.
2.
3.
Dec. 31
Dec. 31
Dec. 31
Debra Noll, Capital .....................................................................
Mary Lane, Capital ............................................................
Vera Miles, Capital ............................................................
22,000
Debra Noll, Capital .....................................................................
Vera Miles, Capital ............................................................
22,000
Debra Noll, Capital .....................................................................
Mary Lane, Capital ............................................................
22,000
11,000
11,000
22,000
22,000
BAT4M Accounting
Chapter 13: Partnerships
Mr. Ruston
EXERCISE 13-8
1.
2.
(a)
Sept. 30
Keith White, Capital....................................................................
Dale Nagel, Capital ....................................................................
Dan Neal, Capital .......................................................................
Cash .................................................................................
Capital balance of withdrawing partner ...................................
Payment to withdrawing partner .............................................
Bonus to retiring partner .........................................................
$75,000
082,000
$ 7,000
Allocation of bonus:
Nagel, Capital ($7,000 X 5/7) ..........................
Neal, Capital ($7,000 X 2/7) ............................
$7,000
Sept. 30
$5,000
02,000
Keith White, Capital....................................................................
Dale Nagel, Capital ...........................................................
Dan Neal, Capital ..............................................................
Cash .................................................................................
Capital balance of withdrawing partner ...................................
Payment to withdrawing partner .............................................
Bonus to remaining partners...................................................
$75,000
068,000
$ 7,000
Allocation of bonus:
Nagel, Capital ($7,000 X 5/7) ..................
Neal, Capital ($7,000 X 2/7) ....................
$7,000
1.
2.
3.
Dec. 31
Dec. 31
Dec. 31
$5,000
02,000
PROBLEM 13-7A
L. Tower, Capital ...................................................
E. Atlas, Capital..................................................
P. Ross, Capital .................................................
75,000
5,000
2,000
82,000
75,000
5,000
2,000
68,000
21,500
10,750
10,750
L. Tower, Capital .........................................................
P. Ross, Capital .................................................
21,500
L. Tower, Capital .........................................................
E. Atlas, Capital ($7,500 X 6/9) ...................................
P. Ross, Capital ($7,500 X 3/9) ...................................
Cash ..................................................................
21,500
5,000
2,500
Tower's capital balance ................................................
Payment to Tower ........................................................
Bonus to Tower ............................................................
$21,500
029,000
$ 7,500
21,500
29,000
BAT4M Accounting
Chapter 13: Partnerships
4.
Dec. 31
Mr. Ruston
L. Tower, Capital .........................................................
E. Atlas, Capital ($4,500 X 6/9) ..........................
P. Ross, Capital ($4,500 X 3/9) ..........................
Cash ..................................................................
Tower's capital balance ................................................
Payment to Tower ........................................................
Bonus to remaining partners.........................................
(b)
(1)
(2)
21,500
3,000
1,500
17,000
$21,500
017,000
$ 4,500
Ross's capital after withdrawal...............................................................................
Ross's capital before withdrawal............................................................................
Bonus to Ross.......................................................................................................
$33,000
030,000
$ 3,000
Total bonus ($3,000 ÷ 3/9) ....................................................................................
$ 9,000
Tower's capital balance .........................................................................................
Total bonus to other partners.................................................................................
Cash paid to Tower ...............................................................................................
$21,500
(9,000)
$12,500
Study Objective #7
20.
Total cash after paying liabilities ....................................................................................
Total capital balances ($34,000 + $31,000 + $28,000) ..................................................
Excess (gain on sale of noncash assets).......................................................................
$119,000
0 93,000
$ 26,000
Allocated to Mike ($26,000 X 5/10)................................................................................
$13,000
Cash to Mike ($34,000 + $13,000).................................................................................
$47,000
BRIEF EXERCISE 13-12
Nov. 15
Dupuis, Capital......................................................................................
Dueck, Capital.......................................................................................
Veitch, Capital .......................................................................................
Cash .............................................................................................
EXERCISE 13-9
9,000
7,000
3,000
19,000
BAYLEE COMPANY
Liquidation Schedule
December 31, 2002
Cash
Balances before
liquidation
Sale of noncash
assets and allocation of gain
New balances
Noncash
Assets
Liabilities
Bayer,
Capital
Leech,
Capital
$015,000
$100,000
$55,000
$40,000
$20,000
120,000
0135,000
(100,000)
0000,000
000000
055,000
011,000
051,000
009,000
029,000
BAT4M Accounting
Chapter 13: Partnerships
Pay liabilities
New balances
(55,000)
$ 80,000
Mr. Ruston
000 0000
$
0
00 0000
$51,000
(55,000)
$
0
0000 00
$29,000
$51,000 will be paid to Bayer, and $29,000 to Leech. In each case, this is
equal to the partner’s capital balance before the liquidation, plus his
share of the $20,000 gain on the sale of the noncash assets.
PROBLEM 13-9A
(a)
June 1
Cash ............................................................ 3,000,000
Loss on Realization........................................................
Noncash Assets...................................................
Noncash assets (net) .........................................
Sale proceeds....................................................
Loss on sale of noncash assets .........................
2,800,000
5,800,000
$5,800,000
03,000,000
$ 2,800,000 ÷ 5 =
$560,000
June 1
June 1
June 1
A.J., Capital ...................................................................
Nick, Capital ..................................................................
Howie, Capital................................................................
Brian, Capital .................................................................
Kevin, Capital ................................................................
Loss on Realization ...............................................
560,000
560,000
560,000
560,000
560,000
Liabilities ........................................................................
Cash .....................................................................
3,100,000
A.J., Capital ...................................................................
Nick, Capital ..................................................................
Howie, Capital................................................................
Brian, Capital .................................................................
Kevin, Capital ................................................................
Cash .....................................................................
440,000
440,000
440,000
440,000
40,000
Cash ..............................................................................
Add: Proceeds from sale ...............................................
Less: Payment of liabilities .............................................
Cash available to partners..............................................
2,800,000
3,100,000
1,800,000
$1,900,000
3,000,000
(3,100,000)
$1,800,000
BAT4M Accounting
Chapter 13: Partnerships
Mr. Ruston
PROBLEM 13-9A (Continued)
(b)
June 1
Cash ............................................................ 2,000,000
Loss on Realization........................................................
Noncash Assets...................................................
Noncash assets (net) .........................................
Sale proceeds....................................................
Loss on sale of noncash assets .........................
3,800,000
5,800,000
$5,800,000
2,000,000
$3,800,000 ÷ 5 =
$760,000
June 1
June 1
June 1
June 1
A.J., Capital ...................................................................
Nick, Capital ..................................................................
Howie, Capital................................................................
Brian, Capital .................................................................
Kevin, Capital ................................................................
Loss on Realization ...............................................
760,000
760,000
760,000
760,000
760,000
Liabilities ........................................................................
Cash .....................................................................
3,100,000
Cash
3,800,000
3,100,000
..............................................................160,000
Kevin, Capital ........................................................
160,000
A.J., Capital ...................................................................
Nick, Capital ..................................................................
Howie, Capital................................................................
Brian, Capital .................................................................
Cash .....................................................................
240,000
240,000
240,000
240,000
Cash .................................................................................
Add: Proceeds from sale ..................................................
Add: Cash from Kevin ......................................................
Less: Payment of liabilities ................................................
Cash available to partners.................................................
$1,900,000
2,000,000
160,000
(3,100,000)
$ 960,000
960,000
BAT4M Accounting
Chapter 13: Partnerships
Mr. Ruston
PROBLEM 13-9A (Continued)
(c)
June 1
Cash ............................................................ 2,000,000
Loss on Realization........................................................
Noncash Assets...................................................
Noncash assets (net) .........................................
Sale proceeds....................................................
Loss on sale of noncash assets ......
$3,800,000
June 1
June 1
June 1
June 1
3,800,000
5,800,000
$5,800,000
2,000,000
÷ 5 = $760,000
A.J., Capital ...................................................................
Nick, Capital ..................................................................
Howie, Capital................................................................
Brian, Capital .................................................................
Kevin, Capital ................................................................
Loss on Realization ...............................................
760,000
760,000
760,000
760,000
760,000
Liabilities ........................................................................
Cash .....................................................................
3,100,000
A.J., Capital....................................................................
Nick, Capital ..................................................................
Howie, Capital................................................................
Brian, Capital..................................................................
Kevin, Capital ........................................................
40,000
40,000
40,000
40,000
A.J., Capital....................................................................
Nick, Capital ..................................................................
Howie, Capital................................................................
Brian, Capital .................................................................
Cash .....................................................................
200,000
200,000
200,000
200,000
Cash ..............................................................................
Add: proceeds from sale................................................
Less: payment of liabilities..............................................
Cash available to partners..............................................
$1,900,000
2,000,000
(3,100,000)
$ 800,000
3,800,000
3,100,000
160,000
800,000