SOLUTIONS FOR CHAPTER 12
BRIEF EXERCISE 12-6
Division of Net Income
K. Mills
S. Stone
Net income ..................................................
Salary allowance .........................................
Remaining income .......................................
Interest allowance........................................
Remaining income .......................................
Fixed ratio
Mills ($23,000 X 60%) ............................
Stone ($23,000 X 40%) ..........................
Remaining income .......................................
Division of net income .................................
$25,000
$20,000
4,000
3,000
Total
$75,000
45,000
30,000
7,000
23,000
13,800
$42,800
9,200
000 000
$32,200
23,000
0
$75,000
BRIEF EXERCISE 12-9
(a)
(b)
June 9
K. Carter, Capital ......................................... 11,000
D. Dutton, Capital ...................................
11,000
Regardless of the amount paid for the partnership interest, the entry to record Dutton’s
admission to the partnership would remain the same.
BRIEF EXERCISE 12-11
Dec. 31
B. Boyd, Capital .................................................
M. Ditka, Capital ...........................................
E. Embs, Capital ..........................................
20,000
10,000
10,000
EXERCISE 12-2
Jan. 1
Cash .................................................................... 12,000
Accounts Receivable ........................................... 14,000
Equipment ........................................................... 17,500
Allowance for Doubtful Accounts....................
Accounts Payable ..........................................
T. Karl, Capital ...............................................
3,000
6,000
34,500
EXERCISE 12-3
(a) (1)
HUMA AND HOW
Division of Net Income
Year Ended June 30, 2008
Net income ..................................................
Salary allowance .........................................
Remaining income .......................................
Interest allowance........................................
R. Huma ($50,000 X 5%) .......................
W. How ($40,000 X 5%) .........................
Remaining deficiency ..................................
Fixed ratio
R. Huma ($8,500 X 60%) .......................
W. How ($8,500 X 40%) .........................
Remaining income .......................................
Division of net income .................................
R. Huma
W. How
$20,000
$12,000
Total
$45,000
32,000
13,000
2,500
2,000
4,500
8,500
3,400
00 0000
$17,400
8,500
0
$45,000
5,100
00000 0
$27,600
(2)
HUMA AND HOW
Division of Net Income
Year Ended June 30, 2008
Net income ..................................................
Salary allowance .........................................
Remaining income .......................................
Interest allowance........................................
Remaining deficiency ..................................
Fixed ratio
R. Huma ($4,500 X 60%) .......................
W. How ($4,500 X 40%) .........................
Remaining deficiency ..................................
Division of net income .................................
(b)
(1)
(2)
June 30
June 30
R. Huma
W. How
$20,000
$12,000
2,500
2,000
Total
$32,000
32,000
0
4,500
(4,500)
(2,700)
00 0000
$19,800
(1,800)
00 0000
$12,200
(4,500)
0
$32,000
Income Summary...................................... 45,000
R. Huma, Capital .................................
W. How, Capital...................................
27,600
17,400
Income Summary...................................... 32,000
R. Huma, Capital .................................
W. How, Capital...................................
19,800
12,200
EXERCISE 12-4
(a)
SCHOTT CO.
Statement of Partners' Capital
Year Ended December 31, 2008
Capital, January 1 ...................................
Add: Net income .....................................
Less: Drawings .......................................
Capital, December 31 .............................
M. Salz
$20,000
24,000
44,000
8,000
$36,000
C. Toni
$18,000
8,000
26,000
5,000
$21,000
Total
$38,000
32,000
70,000
13,000
$57,000
(b)
SCHOTT CO.
Balance Sheet (partial)
December 31, 2008
Partners' equity
M. Salz, Capital ..............................................................................
C. Toni, Capital ..............................................................................
Total partners' equity ...........................................................................
$36,000
21,000
$57,000
EXERCISE 12-6
(a)
Jan. 1
Cash ............................................................. 75,000
J. Keho, Capital (4/6 X $16,250) .............
M. McLain, Capital (2/6 X $16,250) ......... 5,417
E. Kehler, Capital ....................................
10,833
58,750
Total capital of existing partnership ...........................................
Investment by new partner, E. Kehler........................................
Total capital of new partnership .................................................
$160,000
75,000
$235,000
E. Kehler's capital credit (25% X $235,000) ..............................
$58,750
Investment by new partner, E. Kehler........................................
E. Kehler's capital credit ............................................................
Bonus to old partners ................................................................
$75,000
58,750
$16,250
EXERCISE 12-6
(b)
Jan. 1
Cash ............................................................ 45,000
J. Keho, Capital (4/6 X $6,250) ...................
4,167
M. McLain, Capital (2/6 X $6,250) ...............
2,083
E. Kehler, Capital ...................................
51,250
Total capital of existing partnership ...........................................
Investment by new partner, E. Kehler........................................
Total capital of new partnership .................................................
$160,000
45,000
$205,000
E. Kehler's capital credit (25% X $205,000) ..............................
$51,250
Investment by new partner, E. Kehler........................................
E. Kehler's capital credit ............................................................
Bonus to new partner ................................................................
$45,000
51,250
$ 6,250
EXERCISE 12-8
1.
2.
Sept. 30
K. White, Capital ....................................... 75,000
D. Nagel, Capital.......................................
6,667
D. Neal, Capital.........................................
3,333
Cash ....................................................
85,000
Capital balance of withdrawing partner ......................................
Payment to withdrawing partner ................................................
Bonus to retiring partner ............................................................
$75,000
0 85,000
$10,000
Allocation of bonus:
D. Nagel, Capital ($10,000 X 4/6) ................................ $6,667
D. Neal, Capital ($10,000 X 2/6) ..................................
3,333
$10,000
Sept. 30
K. White, Capital ....................................... 75,000
D. Nagel, Capital .................................
D. Neal, Capital ...................................
Cash ....................................................
Capital balance of withdrawing partner ......................................
Payment to withdrawing partner ................................................
Bonus to remaining partners .....................................................
Allocation of bonus:
D. Nagel, Capital ($6,000 X 4/6) .................................. $4,000
D. Neal, Capital ($6,000 X 2/6) .................................... 02,000
4,000
2,000
69,000
$75,000
069,000
$ 6,000
$6,000
EXERCISE 12-9
BAYLEE COMPANY
Liquidation Schedule
December 31
Balances before
liquidation
Sale of noncash
assets and
allocation of
gain
New balances
Pay liabilities
New balances
Cash
Noncash
Assets1
Liabilities
H. Bayer,
Capital
J. Leech,
Capital
$ 20,000
$100,000
$55,000
$45,000
$20,000
120,000
140,000
(55,000)
$ 85,000
(100,000)
0
__ _____
$
0
_______
55,000
(55,000)
$
0
12,000
57,000
_______
$57,000
8,000
28,000
_______
$28,000
$57,000 will be paid to H. Bayer, and $28,000 to J. 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.
1 Noncash
assets are equipment of $140,000 less accumulated amortization of $40,000.
PROBLEM 12-2A
(a)
(b)
Jan.
Jan.
1 Cash ............................................................. 9,500
Accounts Receivable .................................... 15,000
Merchandise Inventory ................................. 32,000
Equipment .................................................... 28,000
Allowance for Doubtful Accounts ............ 3,500
Notes Payable ........................................
Accounts Payable ...................................
F. Visanji, Capital ....................................
30,000
15,000
36,000
1 Cash ............................................................. 6,000
Accounts Receivable .................................... 23,000
Merchandise Inventory ................................. 15,000
Equipment .................................................... 15,000
Allowance for Doubtful Accounts ............ 5,000
Notes Payable ........................................
Accounts Payable ...................................
P. Vanbakel, Capital ...............................
20,000
17,000
17,000
1 Cash ............................................................. 15,500
P. Vanbakel, Capital ...............................
15,500
(c)
VARSITY PARTNERSHIP
Balance Sheet
January 1, 2008
Assets
Current assets
Cash ($9,500 + $6,000 + $15,500) ...................................
Accounts receivable ($15,000 + $23,000) .........................
Less: Allowance for doubtful accounts
($3,500 + $5,000) ...................................................
Merchandise inventory ($32,000 + $15,000) .....................
Total current assets ................................................
Property, plant, and equipment
Equipment ($28,000 + $15,000) ..................................
Total assets ............................................................
Liabilities and Partners' Equity
$ 31,000
$38,000
8,500
29,500
47,000
107,500
43,000
$150,500
Current liabilities
Notes payable ($30,000 + $20,000) .............................................
Accounts payable ($15,000 + $17,000) .......................................
Total current liabilities .............................................................
$050,000
32,000
82,000
Partners' equity
F. Visanji, Capital .........................................................................
P. Vanbakel, Capital ($17,000 + $15,500) ...................................
Total partners' equity ..............................................................
Total liabilities and partners' equity .........................................
36,000
32,500
68,500
$150,500
PROBLEM 12-3A
(a)
1.
2.
3.
Dec.
Dec.
Dec.
31 Income Summary ......................................
S. Little, Capital
($47,000 X 50/100) ..............................
D. Bartlet, Capital
($47,000 X 30/100) ..............................
D. Sawka, Capital
($47,000 X 20/100) ..............................
47,000
31 Income Summary ......................................
S. Little, Capital ($0 + $3,000)..............
D. Bartlet, Capital
($15,000 + $3,000) ...............................
D. Sawka, Capital
($10,000 + $3,000) ...............................
34,000
23,500
14,100
9,400
3,000
18,000
13,000
Net income ...........................................................
Less: Salary allowance
D. Bartlet .........................................................
D. Sawka ........................................................
Remainder ...........................................................
$34,000
To each partner ($9,000 X 1/3) ............................
$ 3,000
31 Income Summary ............................................
S. Little, Capital
($2,500 + $1,000) ......................................
D. Bartlet, Capital
($1,500 + $1,000) ......................................
D. Sawka, Capital
$1,000 + $15,000 + $1,000) .....................
(15,000)
(10,000)
$ 9,000
23,000
3,500
2,500
17,000
PROBLEM 12-3A (Continued)
(a) (3) (Continued)
(b)
Dec. 31
Net income ................................................................
Less: Interest allowance
S. Little ($50,000 X 5%) ....................... $(2,500)
D. Bartlet ($30,000 X 5%) .................... (1,500)
D. Sawka ($20,000 X 5%) .................... (1,000)
Less: Salary allowance
D. Sawka ........................................................
Remainder .................................................................
(15,000)
$ 3,000
To each partner ($3,000 X 1/3) .................................
$ 1,000
S. Little, Capital .........................................
D. Bartlet, Capital ......................................
D. Sawka, Capital ......................................
S. Little, Drawings ................................
D. Bartlet, Drawings .............................
D. Sawka, Drawings .............................
$23,000
(5,000)
23,000
14,000
10,000
23,000
14,000
10,000
(c)
LBS COMPANY
Statement of Partners' Capital
Year Ended December 31, 2008
Capital, January 1
Add: Net income
Less: Drawings
Capital, December 31
S. Little
$50,000
3,500
53,500
23,000
$30,500
D. Bartlet
$30,000
2,500
32,500
14,000
$18,500
D. Sawka
$20,000
17,000
37,000
10,000
$27,000
Total
$100,000
23,000
123,000
47,000
$76,000
PROBLEM 12-4A
(a)
LAM TAN PARTNERSHIP
Income Statement
Year Ended January 31, 2008
Sales revenue ...................................................................................
Cost of goods sold.............................................................................
Gross profit ........................................................................ 150,000
Operating expenses ..........................................................................
Net income ........................................................................................
$445,000
295,000
100,000
$ 50,000
(b)
LAM TAN PARTNERSHIP
Division of Net Income
Year Ended January 31, 2008
Net income ................................................
Salary allowance .......................................
Remaining deficiency ................................
Interest allowance
T. Lam ($110,000 X 6%) ......................
C. Tan ($130,000 X 6%) ......................
Remaining deficiency ................................
T. Lam ($29,400 X 4/6) ........................
C. Tan ($29,400 X 2/6) ........................
Remaining deficiency ................................
Division of net income ...............................
T. Lam
C. Tan
$40,000
$25,000
Total
$50,000
65,000
(15,000)
6,600
7,800
14,400
(29,400)
(19,600)
000 000
$27,000
(9,800)
000 000
$23,000
(29,400)
0
$50,000
PROBLEM 12-4A (Continued)
(c)
LAM TAN PARTNERSHIP
Statement of Partners’ Capital
Year Ended January 31, 2008
Capital, February 1, 2007 .......................
Add: Net income .....................................
Less: Drawings .......................................
Capital, January 31, 2008 ......................
(d)
Jan.
T. Lam
$110,000
27,000
137,000
40,000
$ 97,000
C. Tan
$130,000
23,000
153,000
30,000
$123,000
31 Sales ......................................................
Income Summary .............................
445,000
31 Income Summary ...................................
Cost of Goods Sold ..........................
Operating Expenses..........................
395,000
31 Income Summary ...................................
T. Lam, Capital .................................
C. Tan, Capital ..................................
50,000
31 T. Lam, Capital .......................................
C. Tan, Capital .......................................
T. Lam, Drawings .............................
C. Tan, Drawings ..............................
40,000
30,000
Total
$240,000
50,000
290,000
70,000
$220,000
445,000
295,000
100,000
27,000
23,000
40,000
30,000