Ch 13 Partnership Text Questions
Ex 13-4 Division of Partnership Net Income
Net Income to be divided
Salary Allowances
Income after salary allowances
Interest allowances on beginning capital
Guenther ($100,000 x 15%)
Firmin ($80,000 x 15%)
Remaining income after salary and interest
allowances
Allocated in a fixed ratio:
Guenther (60%)
Firmin (40%)
Total share of income to each partner
Guenther
Firmin
$ 80,000
$ 60,000
Net Income
$247,000
- 140,000
$107,000
15,000
12,000
- 15,000
- 12,000
$ 80,000
32,000
$104,000
- 80,000
$0
48,000
$143,000
Ex 13-5 Admission of a New Partner; Bonus to Old Partners
Abrams Capital $102,000 (1/3)
Boling Capital $63,000 (2/3)
New partner Cato $105,000 investment for 1/3 equity interest
i)
Net assets of old partnership ($102,000 + $63,000)
Cash investment by new partner
Net assets of new partnership
Cato’s 1/3 equity interest ($270,000 x 1/3)
Cato’s investment
Cato’s equity interest
Bonus to original partners
$165,000
105,000
$270,000
$ 90,000
$105,000
90,000
$ 15,000
Cato gets a lesser equity interest compared to what he invested by $15,000. This $15,000 difference
will be a bonus to the existing partner’s capital accounts. It will be an increase adjustment to their
equity accounts allocated 1/3 to Abrams ($15,000 x 1/3 = $5000) and 2/3 to Boling ($15,000 x 2/3 =
$10,000).
ii)
Journal Entry:
Cash
Abrams, Capital
Boling, Capital
Cato, Capital
To record admission of Cato as a partner
with a 1/3 equity interest.
105,000
5,000
10,000
90,000
Ex 13-6 Admission of a New Partner; Bonus Computation
i)
Net assets of old partnership ($140,000 + $140,000)
Cash investment by new partner
Net assets of new partnership
Foster’s 1/4 equity interest ($360,000 x 1/4)
Foster’s investment
Foster’s equity interest
Bonus to Foster
$280,000
80,000
$360,000
$ 90,000
$80,000
90,000
$10,000
Foster obtains a greater equity interest compared to what he invested by $10,000. This $10,000
difference will be a bonus to Foster and will result in a decrease adjustment to Randall and Dirk’s
equity balances - 60% from Randall ($10,000 x .6 = $6,000) and 40% from Dirks ($10,000 x .4 =
$4,000)
ii)
Journal Entry:
Cash
80,000
Randall, Capital
6,000
Dirk, Capital
4,000
Foster, Capital
To record admission of Foster as a Partner with a 1/4 interest
in Capital and net income, and the allowance of $10,000
bonus to Foster: 60% from Randall and 40% from Dirk
90,000
Ex 13-7 Withdrawal of a Partner
Drake, capital
Dunlap, capital
Dyson, capital
Total capital
$ 90,000
$210,000
$180,000
$480,000
Income Ratio 25%
50%
25%
Dyson is withdrawing from the partnership and it is agreed that he shall be paid $240,000 for his interest
because the earnings of the business are high in relation to the assets of the firm. Therefore, he will receive a
bonus of $240,000 - $180,000 = $60,000
New income ratios for remaining partners
Drake 25% and Dunlap 50% = 75%
Drake: 25/75 = 1/3
DR adjustment to reduce Drake’s capital account: $60,000 x 1/3 = $20,000
Dunlap 50/75 = 2/3
DR adjustment to reduce Dunlap’s capital account: $60,000 x 2/3 = $40,000
Journal entry:
Dyson, Capital (retiring partner)
Drake, Capital
Dunlap, Capital
Cash
To record the withdrawal of partner Dyson, and payment
of his capital account plus a bonus of $60,000. Bonus
charged to Drake (30%) and Dunlap (70%).
180,000
20,000
40,000
240,000
Ex 13-8 Liquidation of a Partnership
After all liabilities paid and assets sold the balances in the partners’ capital accounts are:
Cooley, Capital
Dean, Capital
Emmet, Capital
$42,000
($16,000)
$53,000
Income ratio 10%
60%
30%
a) If distribution of remaining cash of Dean unable to pay the amount owed to the firm
Cooley 10% and Emmet 30% = 40%
Cooley: 10/40 = 25%
Dean loss absorbed $16,000 x .25 = $4,000
Emmet 30/40 = 75%
Dean loss absorbed $16,000 x .75 = $12,000
Journal entry:
Cooley, Capital ($42,000 - $4,000)
38,000
Emmet, Capital ($53,000 - $12,000)
41,000
Cash
To divide the remaining cash to Cooley
and Emmet and absorbing the loss of Dean’s
capital balance.
79,000
Equity Ending Balances on the Balance Sheet:
Cooley, Capital
$ 4,000
Emmet, Capital
$ 12,000
Dean, Capital
($16,000)
b) Cash
Dean, Capital
Cooley, Capital (13,000 x 25%)
Emmet, Capital (13,000 x 75%)
Cash
13,000
13,000
3,250
9,750
13,000
Equity Ending Balances on the Balance Sheet:
Cooley, Capital
$ 750
(13,000 x 25%)
Emmet, Capital
$ 2,250
(13,000 x 75%)
Dean, Capital
($3,000)