Mrs. O’Donnell BAT4M0
Ch. 13 Partnerships - Sample Questions
Question 1:
Smith and Jones agreed to establish a partnership on January 1, 2011 with the following capital
contributions:
Furniture
Office Equipment
Vehicle
Cash
Smith
25,000
15,000
100,000
Jones
30,000
50,000
60,000
a) Prepare journal entries to record the above transaction.
b) Prepare a balance sheet for Smith & Jones Co. as at December 31, 2011.
Question 2:
Prior to adjustment at the end of the fiscal year December 31, 2011, for Smark, Lark and Dark,
Barristers & Solicitors, the accounts showed the following:
Partner
Drawings
Capital
Smark
$0
$12,000
Lark
5,000
17,000
Dark
9,000
18,000
The capital balance represents each partner's capital investment; neither income nor loss nor
drawings have been closed to the accounts and there has been no change in capital during the
year. The partnership reported a net income of $10,000. All partners are allowed interest of
20% on beginning capital balances and the remainder is shared equally.
Instructions
(a) Prepare a schedule showing the division of net income.
(b) Prepare the journal entry to record the division of net income for the year.
(c) Prepare a statement of partners' capital for the year.
Question 3:
On January 1, 2002, the capital balances in Hollingsworth Company are Lois Holly, $26,000,
and Jim Worth, $24,000. For the year ended December 31, 2002, the partnership reports net
income of $30,000. The income ratio provides for salary allowance of $12,000 for Holly and
$10,000 for Worth. The remainder is distributed equally. Neither partner had any drawings in
2002.
a) Prepare a schedule showing the distribution of net income in 2002.
b) Journalize the division of 2002 net income and its distribution to the partners.
Journalize each transaction independently with a Jan. 1, 2003 date (i.e. consider each as a
stand-alone event)
c) Donna Reichenbacher purchased one-half of Holly’s capital interest for $25,000.
d) Marsha Mears is admitted with a 25% capital interest by a cash investment of $40,000.
e) Stan Wells is admitted with a 35% capital interest by a cash investment of $40,000.
Mrs. O’Donnell BAT4M0
Ch 13 Partnerships - Solutions to Sample Questions
Question 1
a)
2011
DR
Jan. 1 Furniture
25,000
Office Equipment
15,000
Cash
100,000
Capital, Smith
Investment into the company by Smith
Jan. 1 Office Equipment
Vehicle
Cash
Capital, Jones
Investment into the company by Jones
CR
140,000
30,000
50,000
60,000
140,000
b)
Balance Sheet
Smith & Jones Co.
December 31, 2011
Assets
Cash
Office Equipment
Furniture
Vehicle
Total Assets
$160,000
45,000
25,000
50,000
Partners’ Equity
Capital, Smith
Capital, Jones
Total Partners’ Equity
$140,000
140,000
$280,000
$280,000
Mrs. O’Donnell BAT4M0
Question 2
Division of Net Income
a)
Smark
Lark
Dark
Total
10,000
20% x $12,000
20% x $17,000
20% x 18,000
2,400
3,400
3,600
Total income
20% on
beginning
balance
9,400
Balance
remaining
Totals
b)
600
600/3= 200
600/3= 200
600/3= 200
$2,600
======
$3,600
======
$3,800
======
$10,000
======
December 31
Income summary
10,000
Capital, Smark
2,600
Capital, Lark
3,600
Capital, Dark
3,800
To record the division of income for the year
c)
Smark, Lark and Dark, Barristers & Solicitors
Statement of Partners' Capital
Year Ending December 31, 2011
Smark
Lark
Dark
Total
$12,000
$17,000
$18,000
$47,000
Add: net income
2,600
3,600
3,800
10,000
Less: drawings
-
5,000
9,000
14,000
$15,600
======
$12,800
======
$43,000
Capital, January 1
Capital, December 31
Question 3 (see separate .pdf file)
$14,600
======
Mrs. O’Donnell BAT4M0
Appendix 2.2.1 Partnership Review Problem
Question 1:
Brown, Capital $60,000
Green, Capital $40,000
Net Income $120,000
a) No written partnership agreement then law would state 50/50 distribution of income – Brown
$60,000 and Green $60,000
b) Profits divided based on original capital contributions
Brown 60,000/100,000 = 60% Income $120,000 x .60 = $72,000
Green 40,000/100,000 = 40% Income $120,000 x .40 = $48,000
Mrs. O’Donnell BAT4M0
Question 2:
Net Income $180,000
Young 60% share of profits = $180,000 x .60 = $108,000
Young opening Capital balance $ 44,418.12
Net Income share
108,000.00
Drawings
48,000.00
Young ending Capital balance $104,418.12
Olde 40% share of profits = $180,000 x .40 = $72,000
Olde opening Capital balance $ 35,812.90
Net Income share
72,000.00
Drawings
24,000.00
Olde ending Capital balance
$ 83,812.90
Young & Olde, Partners in Law
Balance Sheet
December 31, 2001
Assets
Bank
Accounts Receivable
Supplies
Prepaid Insurance
Equipment
Automobiles
Total Assets
Liabilities
Accounts Payable
GST Payable
$940.20
GST Recoverable 516.80
Total Liabilities
Partners’ Equity
Young, Captial
Olde, Capital
Total Partners’ Equity
Total Liabilities & Partners’ Equity
$ 5,080.22
17,491.00
2,635.00
1,800.00
133,950.70
32,500.00
$193,456.92
$ 4,802.50
423.40
$
5,225.90
$ 104,418.12
83,812.90
188,231.02
$193,456.92