chapter 12-1 accounting for partnerships. chapter 12-2 e12-8variation e12-8 variation the ares...

Chapter 12-1

ACCOUNTING FOR ACCOUNTING FOR PARTNERSHIPSPARTNERSHIPS

Chapter 12-2

E12-8E12-8 variationvariation The ARES partnership at December 31 has cash $20,000, noncash assets $100,000, liabilities $55,000, and the following capital balances: Cassandra $45,000 and Penelope $20,000. The firm is liquidated, and $120,000 in cash is received for the noncash assets. Cassandra and Penelope income ratios are 60% and 40%, respectively.

Instructions:

Prepare a cash distribution schedule.

Liquidation of a PartnershipLiquidation of a PartnershipLiquidation of a PartnershipLiquidation of a Partnership

LO 5 Explain the effects of the entries to LO 5 Explain the effects of the entries to record the liquidation of a partnership.record the liquidation of a partnership.

No Capital Deficiency

Chapter 12-3

E12-8E12-8 variation Prepare a cash distribution schedule.




1 & 21 & 2

3 3

44

Chapter 12-4

E12-9E12-9 Data for The ARES partnership are presented in E12-8.

Prepare the entries to record:

a) The sale of noncash assets.

b) The allocation of the gain or loss on liquidation to the partners.

c) Payment of creditors.

d) Distribution of cash to the partners.




Chapter 12-5

E12-9E12-9 Prepare the entries to record: a) The sale of noncash assets. b) The allocation of the gain or loss on liquidation to the partners. c) Payment of creditors. d) Distribution of cash to the partners.



Noncash assets

100,000

Cash 120,000(a)

Gain on realization

20,000Cassandra, Capital ($20,000 x 60%)

12,000

Gain on realization 20,000(b)

Penelope, Capital ($20,000 x 40%)

8,000


Chapter 12-6

E12-9E12-9 Prepare the entries to record: a) The sale of noncash assets. b) The allocation of the gain or loss on liquidation to the partners. c) Payment of creditors. d) Distribution of cash to the partners.



Cash

55,000

Liabilities 55,000(c)

Penelope, Capital 28,000Cassandra, Capital 57,000(d)

Cash

85,000


Chapter 12-7

The first step in the liquidation of a partnership is to:

a. allocate gain/loss on realization to the partners.

b. distribute remaining cash to partners.

c. pay partnership liabilities.

d. sell noncash assets and recognize a gain or loss on realization.

QuestionQuestion



Chapter 12-8



Look page 528

Capital Deficiency

Chapter 12-9

E12-10E12-10 Prior to the distribution of cash to the partners, the accounts in the NJF Company are: Cash $28,000, Newell Capital (Cr.) $17,000, Jennings Capital (Cr.) $15,000, and Farley Capital (Dr.) $4,000. The income ratios are 5:3:2, respectively.

Instructions

(a) Prepare the entry to record (1) Farley’s payment of $4,000 in cash to the partnership and (2) the distribution of cash to the partners with credit balances.

(b) Prepare the entry to record (1) the absorption of Farley’s capital deficiency by the other partners and (2) the distribution of cash to the partners with credit balances.



Capital Deficiency

Chapter 12-10



Newell, J ennings, Farley,

Cash Capital Capital Capital

Balances before liquidation 28,000$ (17,000)$ (15,000)$ 4,000$

Farley payment 4,000 (4,000)

Balance 32,000$ (17,000)$ (15,000)$ -$

E12-10E12-10 (a)

Farley, Capital

4,000

Cash 4,000(a)

Jennings, Capital 15,000Newell, Capital 17,000

Cash

32,000

Capital Deficiency

Chapter 12-11



Newell, J ennings, Farley,

Cash Capital Capital Capital

Balances before liquidation 28,000$ (17,000)$ (15,000)$ 4,000$

Absorb Farley deficiency 2,500 1,500 (4,000)

Balance 28,000$ (14,500)$ (13,500)$ -$

E12-10E12-10 (b)

Jennings, Capital 1,500Newell, Capital 2,500(b)

Jennings, Capital 13,500Newell, Capital 14,500

Cash

28,000

Farley, Capital

4,000

Capital Deficiency

Chapter 12-12

If a partner with a capital deficiency is unable to pay the amount owed to the partnership, the deficiency is allocated to the partners with credit balances:

a. equally.

b. on the basis of their income ratios.

c. on the basis of their capital balances.

d. on the basis of their original investments.

QuestionQuestion



Chapter 12-13

Admission of a PartnerAdmission of a PartnerAdmission of a PartnerAdmission of a Partner

LO 6 Explain the effects of the entries when a LO 6 Explain the effects of the entries when a new partner is admitted.new partner is admitted.

Illustration 12A-1

Chapter 12-14

Purchase of a Partner’s InterestPurchase of a Partner’s InterestPurchase of a Partner’s InterestPurchase of a Partner’s Interest

Look page 533-534 Look page 533-534

Assume that L. Carson agrees to pay $10,000 each to C. Ames and D. Barker for 33 1/3% of their interest in the Ames-Barker partnership. At the time of admission of Carson, each partner has a $30,000 capital balance. Both partners, therefore, give up $10,000 of their capital equity. The entry to record the admission of Carson is:

L. Carson, Capital 20,000D. Barker, Capital 10,000

C. Ames, Capital 10,000

The cash paid by Carson goes directly to the individual partners and not to the partnership. Net assets remain unchanged at $60,000.

Chapter 12-15

Investment of Assets in a Investment of Assets in a PartnershipPartnershipInvestment of Assets in a Investment of Assets in a PartnershipPartnership

Assume that L. Carson agrees to invest $30,000 in cash in the Ames-barker partnership for a 33 1/3% capital interest. At the time of admission of Carson, each partner has a $30,000 capital balance. The entry to record the admission of Carson is:

L. Carson, Capital 30,000

Cash 30,000

Note that both net assets and total capital have increased by $30,000.

Look page:534 Look page:534

Chapter 12-16

Withdrawal of a PartnerWithdrawal of a PartnerWithdrawal of a PartnerWithdrawal of a Partner

LO 7 Describe the effects of the entries when LO 7 Describe the effects of the entries when a partner withdraws from the firm.a partner withdraws from the firm.

A partner may withdraw from a partnership voluntarily, by selling his or her equity in the firm.

Or, he or she may withdraw involuntarily, by reaching mandatory retirement age or by dying.

The withdrawal of a partner, like the admission of a partner, legally dissolves the partnership.

Chapter 12-17

Withdrawal of a PartnerWithdrawal of a PartnerWithdrawal of a PartnerWithdrawal of a PartnerIllustration 12A-6


Chapter 12-18

Payment From Partners’ Personal Payment From Partners’ Personal AssetsAssetsPayment From Partners’ Personal Payment From Partners’ Personal AssetsAssetsAssume that partners Morz, Nead, and Odom have capital balances of $25,000, $15,000, and $10,000, respectively. Morz and Nead agree to buy out Odom’s interest. Each of them agrees to pay Odom $8,000 in exchange for one-half of Odom’s total interest of $10,000. The entry to record the withdrawal is:

Nead, Capital 5,000 Morz, Capital 5,000Odom, Capital 10,000

Note that net assets and total capital remain the same at $50,000. The $16,000 paid to Odom by the remaining partners isn’t recorded by the partnership.

Look page:537Look page:537

Chapter 12-19

Payment From Partnership AssetsPayment From Partnership AssetsPayment From Partnership AssetsPayment From Partnership Assets

Assume that the following capital balances exist in the RST partnership: Roman $50,000, Sand $30,000, and Terk $20,000. The partners share income in the ratio of 3:2:1, respectively. Terk retires from the partnership and receives a cash payment of $25,000 from the firm.

In this example, a bonus is paid to the retiring partner since the cash paid to the retiring partner is more than his/her capital balance.Allocate the bonus to the remaining partners on the basis of their income ratios.


Chapter 12-20



The bonus paid to the retiring partner is $5,000, the difference between the $25,000 paid to the retiring partner and his/her capital balance.

The allocation of the $5,000 bonus is: Roman $3,000 ($5,000 X 3/5) and Sand $2,000 ($5,000 X 2/5).


Chapter 12-21



The journal entry to record the withdrawal of Terk is as follows:


Terk, Capital 20,000Roman, Capital 3,000Sand, Capital 2,000

Cash 25,000

chapter 12-1 accounting for partnerships. chapter 12-2 e12-8variation e12-8 variation the ares...

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