Chapter 13
Day 1:
Page 632 – BE13-1
The following terms were introduced in this chapter.
1.
2.
3.
4.
5.
Admission by investment
Salary allowance
Capital deficiency
Limited liability partnership
General partnership
6. Partnership liquidation
7. Withdrawal by payment from partners’
personal assets
8. Income ratio
Match the above terms with the following descriptions:
a) Partners have limited liability
b) Partners have unlimited liability
c) Is the basis for dividing net income and loss
d) Partnership assets and capital increase with the change in partners
e) Partnership assets and capital stay the same with the change in partners.
f) Is a compensation for differences in personal effort put into the partnership
g) Is a debit balance in a partner’s capital account.
h) Is the termination of the partnership
Page 633 – BE13-2
R. Alfredo and B. Panos decide to organize the All-Star partnership. Alfredo invests $15,000 cash.
Panos contributes $10,000 cash and equipment having a book value of $3,500. The equipment has a
fair market value of $6,000. Prepare the entry to record each partner’s investment in the partnership
on July 10, 2003.
Day 2:
Page 633 – BE13-5
MET Co. reports net income of $60,000. Partner salary allowances are Moses $10,000, Eaton $5,000,
and Talty $5,000. Indicate the division of net income to each partner. The income ratios are 5:3:2,
respectively.
Page 634 – E13-3
R. Huma and W. How have capital balances on July 1, 2002 of $50,000 and $40,000, respectively. The
partnership income-sharing agreement provides for 1) salary allowances of $20,000 for Huma and
$12,000 for How, 2) interest at 10% on beginning capital balances, and 3) remaining income or loss to
be shared 70% by Huma and 30% by How.
Instructions
a) Prepare a schedule showing the division of net income for the year ended June 30, 2003,
assuming net income is 1) $55,000 and 2) $30,000.
b) Journalize the allocation of net income in each of the situations above.
Page 636-637 – P13-4A (a-b)
At the end of its first year of operations, on December 31, 2003, the LMN Company’s accounts show the
following:
Partner
Drawings
Capital
Lois Lang
Mary Mio
Sue Norton
$12,000
9,000
6,000
$33,000
20,000
10,000
The capital balance represents each partner’s initial capital investment. Net income or net loss for
2003 has not been closed to the partner’s capital accounts.
Instructions
a) Prepare a schedule showing the division of net income for 2003 under each of the following
assumptions:
1. Net income is $28,000. Income is shared 5:3:2 (Lang, Mio, Norton).
2. Net income is $30,000. Lang and Mio are given salary allowances of $10,000 and $8,000,
respectively. The remainder is shared equally.
3. Net income is $25,200. Each partner is allowed interest of 10% on beginning capital
balances. Lang is given a $15,000 salary allowance. The remainder is shared equally.
b) Prepare the entry to record the division of net income calculated in a) for each of the three
assumptions.
Day 3:
Page 633 – BE13-7
The medical practice of Drs. Jarratt and Bramstrup had the following general ledger account balances
at April 30, 2003, its fiscal year end:
 Cash - $10,000
 Dr. Jarratt, Drawings - $5,000
 Equipment - $50,000
 Dr. Bramstrup, Capital, - $15,000
 Accumulated Amortization-Equipment  Dr. Bramstrup, Drawings, - $5,000
$15,000
 Fees Earned - $60,000
 Notes Payable, due 2004 - $20,000
 Operation Expenses, $50,000
 Dr. Jarratt, Capital - $10,000
Prepare the year-end partnership financial statements, assuming the doctors share income or loss
equally.
Page 634 – E13-4
In Schott Co., beginning capital balances of the partners on January 1, 2003, are M. Slaz, $20,000, and C.
Toniz, $18,000. During the year, drawings were Salz, $8,000, and Toni, $3,000. Net income was
$30,000. The partners share income equally.
Instructions
a) Prepare the statement of partners’ capital for the year.
b) Prepare the partners’ equity section of the balance sheet at December 31, 2003.
Page 636 – P13-4A (c only)
At the end of its first year of operations, on December 31, 2003, the LMN Company’s accounts show the
following:
Partner
Lois Lang
Mary Mio
Sue Norton
Drawings
$12,000
9,000
6,000
Capital
$33,000
20,000
10,000
The capital balance represents each partner’s initial capital investment. Net income or net loss for
2003 has not been closed to the partner’s capital accounts.
Instructions
c) Prepare a statement of partners’ capital for the year under assumption 3 in a) above. (a is in Day 2)
Day 4:
Page 633 – BE13-10
The capital balances of the partners in DEB Co. are Ditka, $40,000; Embs, $30,000; and Boyd, $25,000.
The partners share income equally. Ditka and Embs each agree to pay Boyd $12,000 from their
personal assets to receive 50% each of Boyd’s equity. Journalize the withdrawal of Boyd on December
31, 2002.
Page 634 – E13-6
Joe Keho and Mike McLain share income on a 6:4 basis, respectively. They have capital balances of
$90,000 and $70,000, respectively, when ED Kehler is admitted to the partnership on January 1, 2003.
Instructions
Prepare the journal entry to record the admission of Ed Kehler on January 1 under each of the
following assumptions:
a) Kehler invests $100,000 cash for a 25% ownership interest, with bonuses to the existing
partners
b) Kehler invests $36,000 cash for a 25% ownership interest, with a bonus to the new partner.
Page 635 – E13-8
Dale Nagel, Keith White, and Dan Neal have capital balances of $95,000, $75,000, and $60,000,
respectively. They share income or loss on a 5:3:2 basis, respectively. White withdraws from the
partnership on September 30, 2003, under each of the following conditions:
1. White is paid $82,000 in cash from partnership assets, and he receives a bonus.
2. White is paid $68,000 in cash from partnership assets, and the remaining partners receive
bonuses.
Instructions
Journalize the withdrawal of White under each of the above assumptions.
Page 637-638 – P13-7A
On December 31, the capital balances and income ratios in the ART Company are as follows:
Partner
Capital Balance
Income Ratio
E. Atlas
$70,000
60%
P. Ross
30,000
30%
L. Tower
21,500
10%
Instructions
a) Journalize the withdrawal of Tower under each of the following assumptions:
1. Each of the remaining partners agrees to pay $12,000 in cash from personal funds to
purchase Tower’s ownership equity. Each receives 50% of Tower’s equity.
2. Ross agrees to purchase Tower’s ownership interest for $18,000 in cash.
3. From partnership assets, Tower is paid $29,000, which includes a bonus to him.
4. Tower is paid $17,000 from partnership assets, and bonuses to the remaining partners
are recognized.
b) If Ross’s capital balance after Tower’s withdrawal is $33,000, what were 1) the total bonuses to
the remaining partners, and 2) the cash paid by the partnership to Tower?
Day 5:
Page 633 – BE13-12
After liquidating noncash assets and paying creditors, account balances in the Greenscape Partnership
are:
 Cash - $19,000
 Dueck, Capital - $7,000 (CR)
 Dupuis, Capital, - $9,000 (CR)
 Veitch, Capital, - $3,000 (CR)
The partners share income equally. Journalize the final distribution of cash to the partners on
November 15, 2003.
Page 635 – E13-9
At December 31, Baylee Company, has cash of $15,000, noncash assets of $100,000, liabilities of
$55,000, and the following partners’ capital balances: Bayer - $40,000, Leech - $20,000. The firm is
liquidated on December 31, 2002. Cash of $120,000 is received for the noncash assets. Bayer and
Leech have income ratios of 55% and 45%, respectively.
Instructions
Calculate how much will be paid ot each of the partners when the firm is liquidated on December 31,
2002.
Page 635 – E13-10
Data for the Baylee Company partnership are presented in E13-9.
Instructions
Prepare the entries to record a) the sale of noncash assets, b) the allocation to the partners of the gain
or los on liquidation, c) the payment of creditors, and d) the distribution of cash to the partners.
Page 638 – P13-9A
On June 1, 2003, the musical partnership of A.J., Nick, Howie, Brian, and Kevin decides to separate and
liquidate the partnership. The partners have capital balances of $1,000,000 each except for Kevin,
whose capital balance is $600,000. Cash, noncash assets, and liabilities total $1,900,000, $5,800,000,
and $3,100,000, respectively. The five partners share income and loss equally.
Instructions
Journalize the liquidation of the partnership under each of the following independent assumptions:
a) The noncash assets are sold for $3,000,000 cash, the liabilities are paid, and the remaining cash
is paid to the partners.
b) The noncash assets are sold for $2,000,000 cash and liabilities are paid. The partner with the
debit capital balance pays the amount owed to the partnership and the remaining cash is paid
to the partners.
c) The noncash assets are sold for $2,000,000 cash and the liabilities are paid. The partner with
the debit capital balance is unable to pay the amount owed ot the partnership. The cash is paid
to the four other partners.