chapter 13 - siast5 | material site of siast5 · web viewkay is still liable to her former partners...

Chapter 14 Partnerships

Questions1. No. Partners have the right to select the people with whom they associate themselves

as partners. 2. Death, bankruptcy, or the legal inability of a partner to contract ends a partnership. In

addition, if a partnership is organized for the purpose of completing a specific business project, the partnership ends when the project is completed. If the business for which the partnership was organized cannot be completed but goes on indefinitely, the partnership may be dissolved at the will of any one of its partners.

3. Mutual agency means that each partner is an agent of the partnership and can commit it to contracts that are within the scope of its business.

4. Yes. Such an agreement is binding on members of the partnership. It is also binding on outsiders who know of the agreement. However, it is not binding on outsiders who do not know of the agreement.

5. Unlimited liability means that the creditors of a partnership have the right to require each partner to be personally responsible for all debts of the partnership.

6. All partners in a general partnership have unlimited liability. A limited partnership includes both general and limited partners, but the limited partners have no personal liability for partnership debts. Also, the general partners assume the management duties of the partnership.

7. George’s claim is not valid unless the previously agreed upon method of sharing net incomes and losses granted George an annual salary of $25,000. Unless the partnership agreement says otherwise, partners have no claim to a salary allowance in payment for their services.

8. If partners agree on the method of sharing incomes, but say nothing of losses, any losses are shared in the same manner as incomes.

9. The allocation of net income to the partners is reported on the statement of partners’ equity.10. At all times in the accounting history of a partnership, assets must equal liabilities plus

owners’ equity. When the assets are converted to cash, any gains or losses are allocated to the capital accounts of the partners; and when creditors’ claims are paid, assets and liabilities are reduced by equal amounts. Therefore, when the remaining assets are in the form of cash, the amount of cash must equal the proprietary claims of the partners.

11. No. Kay is still liable to her former partners for her share of the losses.12. The remaining partners should share the decline in their equities in accordance with

their income-and-loss-sharing ratio.

Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 14 121

QUICK STUDY

Quick Study 14-1 (10 minutes)The partnership will probably have to pay because it is a merchandising firm. That is, if the vendor knows nothing to the contrary, the vendor may assume that Campbell has the right, because of mutual agency, to bind the firm to contracts for the purchase of merchandise.

Under these circumstances, the public accounting firm is not in the merchandising business. Because the purchase of merchandise to be sold is not within the normal scope of the business of this firm, the vendor has no right to assume Campbell is acting as the agent for the partnership. Hence, the firm probably will not have to pay.

Quick Study 14-2 (10 minutes)Since Hillier is a limited partner, he is not personally liable for any debts of the partnership.

Quick Study 14-3 (10 minutes)201

1Mar. 1

Cash.................................................50,000

Len Peters, Capital....................... 20,000 Beau Silver, Capital...................... 30,000

Quick Study 14-4 (10 minutes)

a. Net incomes and losses are split equally in the absence of a partnership agreement. Therefore, $120,000/2 = $60,000 should be allocated to each partner.

b.2011Mar. 31

Income Summary...............................120,000

Bill Ace, Capital........................... 60,000 Dennis Bud, Capital..................... 60,000

Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.122 Fundamental Accounting Principles, Twelfth Canadian Edition

c.2011Mar. 31

Bill Ace, Capital.................................60,000

Dennis Bud, Capital...........................60,000 Income Summary........................ 120,000


Quick Study 14-5 (20 minutes)2011Dec.

31Income Summary........................... 48,0

00 Lisa Montgomery, Capital......... 41,5

00 Joel Calmar, Capital.................. 6,50

0 To transfer net income of $48,000 from the income summary to the partners’ capital accounts.

Calculations:MontgomeryCalmar Total

Net income............................ $48,000Salary allowances: Montgomery........................$45,000 Calmar................................ $10,000Total salaries allocation ......... – 55,000 Balance of net income over allocated.................................($7,000) Balance allocated equally: Montgomery (50% × –$7,000) (3,500) Calmar (50% × –$7,000)....... (3,500) Total allocated equally......... 7,000 Balance of net income........... $ 0 Allocation to each partner .....$41,500 $ 6,500$48,000


Quick Study 14-6 (15 minutes)2011Dec.

31Jenn Smith, Capital......................... 56,0

00Mike Yang, Capital.......................... 24,0

00 Income Summary....................... 80,00

0 To transfer net loss of $80,000 from the income summary to the partners’ capital accounts.

Calculations:Smith Yang Total

Net loss................................................................$(80,000)Salary allowances: Smith.................................. $115,000 Yang................................... $90,000Total salaries allocation ......... – 205,000 Balance of net loss over allocated.............................$(285,000) Balance allocated equally: Smith (3/5 × –$205,000)....... (171,000) Yang (2/5 × –$205,000)........ (114,000) Total allocated equally......... 205,000 Balance of net loss................ $ 0 Allocation to each partner ..... $(56,000 ) $(24,000 ) ...............................$(80,000)


Oct. 1 Cash.........................................................30,000

Fontaine, Capital................................. 30,000

To record admission of Fontaine by investment;


30,000 + 30,000 + 30,000 = 90,000 x 1/3 = 30,000 to Fontaine.

Quick Study 14-8 (10 minutes)2011Mar. 12

Ramos, Capital..........................................10,000

Briley, Capital...........................................10,000

Fontaine, Capital................................. 20,000

To record admission of Fontaine by purchase; 60,000 total equity x 1/3 = 20,000 to Fontaine.



June 17 Cash.........................................................30,000

Pollard, Capital.........................................3,000

Mission, Capital........................................3,000

Bishop, Capital..................................... 36,000

To record the admission of Bishop; 60,000 + 30,000 = 90,000 total equity x 40% = 36,000.

Quick Study 14-10 (10 minutes)2011Apr. 21

Cash.........................................................30,000

Wilson, Capital..................................... 18,000

Beacon, Capital.................................... 6,000

Metcalf, Capital.................................... 6,000

To record the admission of Wilson; 60,000 + 30,000 = 90,000 total equity x 20% = 18,000.

Quick Study 14-11 (10 minutes)2011Nov. 23

Stuart, Capital..........................................35,000

Cash.................................................... 35,000

To record the retirement of Stuart.

Quick Study 14-12 (10 minutes)2011Nov. 23

Peter, Capital............................................22,000

Cash.................................................... 15,000

Oliver, Capital...................................... 5,25Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 14 127

0 Wendell, Capital................................... 1,75

0 To record the retirement of Peter; 22,000 – 15,000 = 7,000 x 3/4 = 5,250 bonus to Oliver; 7,000 x ¼ = 1,750 bonus to Wendell.


Quick Study 14-13 (10 minutes)

2011Mar. 15

Darlene, Capital........................................250,000

Linda, Capital...........................................25,000

Sue, Capital..............................................25,000

Cash.................................................... 300,000

To record the retirement of Darlene; 300,000 – 250,000 = 50,000 x 2/4 = 25,000 allocated to each remaining partner as a reduction.

Quick Study 14-14 (20 minutes)2011Apr.

1Sam, Capital..............................................87,500

Andrews, Capital........................................63,000Mary, Capital.............................................56,500 Cash.....................................................207,00

0 To record final distribution of cash to partners.

Calculations:Cash Equipme

ntAccum

. Amort.

Sam, Capit

al

Andrews,

Capital

Mary, Capit

alAccount balances immediately prior to liquidation..................

$ 32,000

$151,000

$36,000

$ 65,00

0$

48,000$34,0

00Sale of Equipment and allocation of gain 3:2:3...................

+175, 000

– 151,000

-36,000

+22, 500

+15,0 00

+22, 500

Balance...................... $ 207,00

0$ 0

$ 0

$ 87,50

0$

63,000

$ 56,50

0



Apr. 1 Sam, Capital.............................. 53,750

Andrews, Capital........................ 40,500

Mary, Capital............................. 22,750

Cash...................................... 117,000

To record final distribution of cash to partners.

Calculations:Cash Equipm

entAccum.

Amort.

Sam, Capital

Andrews,

Capital

Mary, Capit

al

Account balances immediately prior to liquidation..................

$ 32,000

$151,000

$36,000

$ 65,000

$ 48,000

$34,000

Sale of Equipment and allocation of loss 3:2:3..........................

+85,0 00

– 151,00

0

-36,00

0 -

11,250 -7,500

- 11,25

0Balance...................... $

117,000

$ 0

$ 0

$ 53,750

$ 40,500

$ 22,75

0EXERCISES

Exercise 14-1 (20 minutes)1. Keith, Scott, and Brian might first consider organizing

their business as a general partnership. However, a problem for the new graduates is that they do not have funds and with no past business experience will probably have trouble getting a business loan. Therefore, instead of a partnership, another option is to incorporate. They can find investors to contribute capital for shares. They can structure the financing so that they remain the major shareholders in the company. Several key advantages to the corporate form is that they will have limited liability and the potential to sell more shares if additional funds are needed. As a corporation any profits will be subject


to corporate income tax. Any dividends paid to the shareholders will also be taxed at the individual level. However, any salaries that Keith, Scott, and Brian pay themselves will be tax-deductible expenses. A possible downside however is that a bank is likely to ask for a personal guarantee and then they will actually lose the limited liability feature.

2. The two doctors should form a partnership. The partnership can borrow funds from the bank to obtain the initial needed capital for the business. The advantages of the partnership are ease of formation and owner authority. Also the owners will pay individual taxes on profits from the partnership but the partnership will not be taxed.

3. Matt should consider using a limited partnership. Given his real estate expertise he can manage the day to day activities of the partnership and serve as its general partner. He can raise the necessary capital by admitting limited partners. The advantages to Matt will be the authority over the partnership that he will have as general partner and the ease of raising capital. All partners will pay individual taxes on profits distributed to them but the partnership entity will not pay income tax.


Exercise 14-2 (25 minutes)1)2011

Feb. 1

Cash.............................................. 105,000

Land.............................................. 120,000

Building......................................... 135,000

Long-Term Notes Payable......... 45,000 Tessa Williams, Capital............. 105,00

0 Audrey To, Capital.................... 210,00

0 To record initial capital investments.

Nov. 20

Tessa Williams, Withdrawals.......... 60,000

Audrey To, Withdrawals................. 45,000 Cash........................................ 105,00

0 To record partners’ withdrawals.

2011Dec.

31Income Summary.......................... 102,00

0 Tessa Williams, Capital............ 66,750 Audrey To, Capital................... 35,250 To close Income Summary account.

Dec. 31

Tessa Williams, Capital.................. 60,000

Audrey To, Capital......................... 45,000 Tessa Williams, Withdrawals.... 60,000 Audrey To, Withdrawals........... 45,000 To close withdrawals accounts.

*Supporting calculations:Willia

msTo Total

Net income................................ $ 102,00

0 Salary allowance:


Williams................................... $52,500

Interest allowances: Williams (20% on $105,000)...... 21,000 To (20% on $210,000)...............

$42,00

0 Total salary and interest allowances...................................

$73,500

$42,000

(115, 500)

Balance of income to be allocated...................................................

$(13,500)

Balance allocated equally: Williams (50% × -$13,500)........ –6,750 To (50% × -$13,500)................. –6,750 Total allocated equally............... (13,5

00) Balance of income......................

$ -

0- Shares of the partners................ $66,75

0$35,25

0 $102,0

00

Exercise 14-2 (concluded)2)Capital account balances: William

sTo

Initial investment.................................... $ 105,00

0

$210,000

Withdrawals............................................ (60,000)

(45,000)

Share of income*..................................... 66,75 0

35,2 50

Ending balances...................................... $111,750

$200,250

Exercise 14-3 (30 minutes)Share

to Newto

n

Share to Scampi Total

Plan (a)

$180,000 × 1/2................ $90,000

$90,000 $180,000

Plan (b)

($52,000/$130,000) × $180,000........................

$72,000

$ 72,000

($78,000/$130,000) × Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 14 133

$180,000........................ ______ $108,000

108,0 00

$72,000

$108,000

$180,000

Plan (c)

Net income..................... $180,000

Salary allowances........... $85,000

$65,000

Interest allowances:($52,000 × 10%)............. 5,200($78,000 × 10%)............. 7,800 Total salary and interest. $90,20

0$72,800 (163,0

00)Balance of income........... $

17,000

Balance allocated equally:($17,000 × 50%)............. 8,500 8,500 (17,00

0) Balance of income........... ______ ______ $ -

0 - Shares of each partner.... $98,70

0$81,300 $180,0

00


Exercise 14-4 (35 minutes)Share to

LoweShare to Bentley Total

1. Net income................ $145,300

Salary allowances...... $85,000 $65,000Interest allowances:($ 80,000 × 15%)...... 12,000($140,000 × 15%)......

21,000Total salaries and interest.....................

$97,000 $86,000 $(183,000)

Balance of income...... $ (37,700

)Remainder 3:2 ratio:(– $37,700 × 3/5:–$37,700 x 2/5)............

(22,620) (15,080)

37,700

Balance of income...... $ -0-

Shares to each partner......................

$74,380 $70,920 $145,300

Share to

Lowe

Share to Bentley Total

2. Net loss..................... $ (40,200)

Salary allowances...... $ 85,000

$ 65,000

Interest allowances:($80,000 × 15%)........ 12,000 ($140,000 × 15%)......

21,000 Total salaries and interest.....................

$ 97,000

$ 86,000

$(183,000)Balance of loss........... $(223,200)Remainder 3:2 ratio:

(–$223,200 × 3/5:–$223,200 x 2/5)..........

(133,920)

(89,280) 223,200 Balance of income...... ____ ____ $ -

0- Shares to each partner

$ ( 36,92

$(3,280) $ (40,200)


Exercise 14-5 (25 minutes)1.2011Dec.

31Income Summary........................... 30,000

Kit Sharp, Capital.......................... 72,000 Josh Stevens, Capital................ 102,000 To transfer net income of $60,000 to partners’ capital accounts.

Calculations:Stevens Sharp Total

Net income............................ $ 30,000Salary allowances: Stevens...............................$130,000Interest allowances: Stevens (15% on $40,000) ... 6,000 Sharp (15% on $200,000) .... _ __ __ 30,000 Total salaries and interest allocation $136,000 $ 30,000.............................. –166,000 Balance of net income over allocated.............................$(136,000) Balance allocated on 1:3 ratio: Stevens (1/4 × –$136,000). . . (34,000) Sharp (3/4 × –$136,000)....... (102,000) Total allocated.................... 136,000 Balance of net income........... $ 0 Allocation to each partner .....$102,000 $ (72,000 ) $ 30,000

2.

Capital account balances: Stevens

Sharp

Initial investment.................................... $ 40,000

$200,000

Withdrawals............................................ (7,000) (24,000)


Share of income...................................... 102,000

(72,0 00)

Ending balances...................................... $135,000

$104,000


Exercise 14-6 (15 minutes)Debra Glen Total

Net income............................. $116,000

4

Salary allowances: Debra.................................... $100,0

00 Glen...................................... $ 0 Total salaries allocation............ (100,0

00)

Balance of net income to be allocated..................................

$ 16,000

3

Balance allocated equally: Debra (50% × –$ ? ).......... 8,0002

Glen (50% × –$ ? )............ 8,0001

Total allocated equally........... Balance of net income............

$

0 Allocation to each partner...... $

108,000

5 $ 8,000 $116,000

1. If Glen’s capital account was credited $8,000 and he was allocated $0 salaries, then his allocation of income is based on his 50% share of the balance remaining after salaries are allocated; $8,000.

2. Since Glen’s 50% share is $8,000, Debra’s 50% share must be $8,000.

3. If 50% of the balance remaining = $8,000, then the balance remaining must be equal to 2 × $8,000 = $16,000.

4. If the balance remaining is $16,000 and total salaries allocated is $100,000, then net income must be equal to $16,000 + $100,000 = $116,000.

5. Debra’s share of net income is $100,000 + $8,000 = $108,000.


Exercise 14-7 (30 minutes)1.

Jensen Yang Total Net income................................ $

63,600 Salary allowance: Jensen...................................... $30,00

0 Yang........................................ $20,00

0 Total salary allowances.............. (50,0

00) Balance of income to be allocated...................................................

$ 13,600

Balance allocated on a 3:2 ratio: Jensen (3/5 × $13,600)............. 8,160 Yang (2/5 × $13,600)................ 5,440 Total allocated........................... (13,60

0) Balance of income......................

$ -


0$25,44

0$

63,600

2.2011Dec. 31

Income summary.......................................63,600

Shawna Jensen, capital.................... 38,160

Mike Yang, capital........................... 25,440

To record closing of net income to capital.

3.DOWNLOADS ETC.

Statement of Partners’ EquityFor Year Ended December 31, 2011

Jensen Yang TotalCapital, December 31, 2010......................

$ 3,800

$ 4,600

$ 8,400

Plus:Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.140 Fundamental Accounting Principles, Twelfth Canadian Edition

Net income.............38,160 25,440

63,600

Total.........................$41,960

$30,040

$72,000

Less: Partners’ withdrawals................

31,000 26,000

57,000

Capital, December 31, 2011......................

$10,960

$ 4,040

$15,000


Exercise 14-7 (concluded)

DOWNLOADS ETC.Balance Sheet

December 31, 2011Assets Current assets: Cash........................................... $12,2

00 Office supplies............................ 1,37

0 Total current assets................... $

13,570

Property, plant and equipment: Office equipment........................ $

8,600 Less: Accumulated amortization.....................................

3,500 5,1 00

Total assets...................................... $ 18,67

0

Liabilities Current liabilities: Accounts payable........................ $

350 Utilities payable......................... 120 Current portion of note payable. . 2,000 $

2,470 Total current liabilities............ Long-term liabilities: Notes payable, due May, 2013 (less current portion)......................................

1,20 0

Total liabilities............................... $ 3,670

Partners’ Equity Shawna Jensen, capital................... $

10,960

Mike Yang, capital.......................... 4,04 0

Total partners’ capital.................... 15,00 0


Total liabilities and partners’ equity. . $ 18,67

0Analysis component:The partners’ capital accounts may be so small relative to the amount of the withdrawals made because:

— the business has very few liabilities and operates at a net income thus allowing the partners to withdraw the majority of the profits

it can be assumed that since withdrawals are significant, the partners are not wanting to expand the business by investing in additional assets.


Exercise 14-8 (25 minutes)a)July 1 Cash.............................................. 95,000

Megan, Capital.......................... 95,000

To record admission of Megan [($380,000 + $95,000) × 20%].

b)July 1 Cash............................................. 115,00

0 Megan, Capital......................... 99,00

0 Hagan, Capital......................... 12,00

0 Baden, Capital......................... 4,000 To record admission of Megan.*

*Supporting computations: $380,000 + $115,000 = $495,000

$495,000 × 20% = $99,000 $115,000 – $99,000 = $16,000 $ 16,000 × 75% = $12,000

$ 16,000 × 25% = $4,000

c)July

1Cash............................................. 55,000

Hagan, Capital............................... 24,000Baden, Capital............................... 8,000 Megan, Capital......................... 87,00

0 To record admission of Megan.*

*Supporting computations:$380,000 + $55,000 = $435,000$435,000 × 20% = $87,000$ 55,000 – $87,000 = –$32,000

–$ 32,000 × 75% = –$24,000–$ 32,000 × 25% = –$8,000


Exercise 14-9 (20 minutes)(a)

2011Sept. 1 Cash........................................... 210,00

0 Wil Court, Capital.................. 210,00

0 To record the admission of new partner; 100,000 + 390,000 + 210,000 = 700,000 total equity; 700,000 x 30% = 210,000.

(b)Sept. 1 Cash........................................... 210,00

0 Wil Court, Capital.................. 140,00

0 Gunnar Schwiede, Capital...... 28,000 Dietar Loris, Capital.............. 42,000 To record admission of new partner with bonus to old partners; 700,000 x 20% = 140,000 equity to Court; 210,000 – 140,000 = 70,000 bonus to old partners; 70,000 x 2/5 = 28,000 to Schwiede; 70,000 x 3/5 = 42,000 to Loris.

(c)Sept. 1 Cash........................................... 210,00

0Gunnar Schwiede, Capital............ 56,000Dietar Loris, Capital..................... 84,000 Wil Court, Capital.................. 350,00

0 To record admission of new partner with bonus to new partner; 700,000 x 50% = 350,000 equity to Court; 350,000 – 210,000 = 140,000 bonus to Court to be allocated between old partners; 140,000 x 2/5 = 56,000; 140,000 x 3/5 = 84,000.


Exercise 14-10 (10 minutes)Apr.

30Prince, Capital................................ 70,000

Queen, Capital.......................... 70,000

To record admission of Queen.


Exercise 14-11 (15 minutes)a)Nov.

30Tran, Capital................................. 25,000

Cash........................................ 25,000

To record retirement of Tran.

b)Nov.

30Tran, Capital................................. 25,000

Holt, Capital (2/8 × $5,000)............ 1,250Barth, Capital (6/8 × $5,000).......... 3,750 Cash........................................ 30,00

0 To record retirement of Tran.

c)Nov.

30Tran, Capital................................. 25,000

Holt, Capital (2/8 × $2,500)...... 625 Barth, Capital (6/8 × $2,500).... 1,875 Cash........................................ 22,50

0 To record retirement of Tran.


Exercise 14-12 (25 minutes)(a)

2011Oct. 1

4Doug Morris, Capital.................... 60,000

Accumulated Amortization, Car.... 22,000 Car....................................... 42,000 Cash..................................... 40,000 To record retirement of a partner; cost of 42,000 – book value of 20,000 = accum. amort. of 22,000.

(b)Oct. 1


Accumulated Amortization, Car.... 22,000 Car....................................... 42,000 Cash..................................... 40,000 Barb Rusnak, Capital............. 10,000 Len Peters, Capital................ 10,000 To record retirement of a partner; 80,000 – 60,000 = 20,000 bonus to old partners; 20,000 x 40/80 = 10,000 bonus allocated to each of Rusnak and Peters.

(c)Oct. 1


Barb Rusnak, Capital................... 15,000Len Peters, Capital...................... 15,000Accumulated Amortization, Car.... 22,000 Car....................................... 42,000 Cash..................................... 40,000 To record retirement of a partner; 60,000 – 30,000 = 30,000 bonus to Morris; 30,000 x 40/80 = 15,000 allocated to each of Rusnak and Peters.


Exercise 14-13 (20 minutes)2012Jan.

1

Cash.......................................................................................................

112,000

Accumulated Amortization, Equipment.......................................

178,000

Loss on Sale of Equipment*.............. 14,000 Equipment................................... 304,00

0 To record sale of equipment.

1Les Wallace, Capital (14,000 × 2/4).... 7,000

Mavis Dunn, Capital (14,000 × 1/4).... 3,500Sig Jensen, Capital (14,000 × 1/4)...... 3,500 Cash........................................... 14,000 To distribute loss on sale of equipment to partners.

1Accounts Payable............................. 14,000

Notes Payable.................................. 24,000 Cash........................................... 38,000 To pay creditors.

1 Les Wallace, Capital......................... 55,000Mavis Dunn, Capital......................... 24,500Sig Jensen, Capital........................... 20,500 Cash........................................... 100,00

0 To distribute remaining cash to partners.

Calculations:

Cash Equipment

Accum. Amort., Equipme

nt

Accounts

Payable

Notes Payabl

e

Les Wallac

e, Capita

l

Mavis Dunn, Capita

l

Sig Jensen

, Capita

l

Account balances December 31, 2011... $

26,000

$ 304,000

$ 178,000

$ 14,000

$ 24,000

$62,000

$28,000

$24,000

Sale of equipment


for a loss of $14,000. +112,000

– 304,000

– 178,000

– 7,000

– 3,500

– 3,500

Balance.................... $ 138,0

00

$ 0

$ 0 $ 14,000

$ 24,000

$55,000

$24,500

$20,500

Payment of liabilities..................

– 38,00

0

– 14,000

– 24,000

Balance.................... $100,000

$ 0

$ 0 $ 0

$ 0

$55,000

$24,500

$20,500


Exercise 14-13 (concluded)*Note – Students may wish to combine the entries for the sale of the equipment and distribution of the loss on sale of equipment as follows :Jan.

1

Cash.......................................................................................................

112,000

Accumulated Amortization, Equipment.......................................

178,000

Les Wallace, Capital (14,000 × 2/4).... 7,000Mavis Dunn, Capital (14,000 × 1/4).... 3,500Sig Jensen, Capital (14,000 × 1/4)...... 3,500 Equipment.............................. 304,00

0 To record sale of equipment and distribution of $14,000 loss on sale of equipment to partners.

Exercise 14-14 (20 minutes)2012Jan.

1Martha Wheaton, Capital.................. 190,00

0Sam Dun, Capital............................. 188,00

0 Cash........................................... 378,00


Cash Building

Accum.

Amort.,

Building

LandAccoun

ts Payabl

e

Martha

Wheaton,

Capital

Bess Jones, Capital

Sam Dun,

Capital

Account balances December 31, 2011........................

$ 92,00

0

$ 412,0

00

$ 240,0

00

$ 104,0

00

$ 64,00

0

$ 158,00

0

$(26,000)

$ 172,00

0Sale of land and building*..................+340,

000

–412,0

00

–240,0

00

– 104,0

00

+

32,000+

16,000 +

16,000Balance.................... $ $ $ $ $ $ $ $


432,000

0 0 0 64,000

190,000

(10,000)

188,000

Payment of liabilities..................

– 64,00

0

– 64,00

0

Balance.................... $ 368,0

00

$ 0

$ 0

$ 0

$ 0

$ 190,00

0

$ (10,00

0)

$ 188,00

0Payment of deficiency................

+ 10,00

0

+ $10,00

0

Balance.................... $ 378,0

00

$ 0

$ 0

$ 0

$ 0

$ 190,00

0

$ 0

$ 188,00

0

* $340,000 – ($412,000 – $240,000 + $104,000) = $64,000 gain$64,000 × 2/4 or 50% = $32,000 to Wheaton$64,000 × ¼ or 25% = $16,000 to each of Jones and Dun


Exercise 14-15 (20 minutes)201

2Jan.

1Martha Wheaton, Capital.................. 183,33

3Sam Dun, Capital............................. 184,66

7 Cash........................................... 368,00


Calculations:

Cash Building

Accum.

Amort.,

Building

LandAccoun

ts Payabl

e

Martha Wheat

on, Capital

Bess Jones, Capital

Sam Dun,

Capital

Account balances December 31, 2011........................

$ 92,00

0

$ 412,0

00

$ 240,0

00

$ 104,0

00

$ 64,00

0

$ 158,00

0

$ (26,00

0)

$ 172,00

0Sale of land and building*..................+340,

000

–412,0

00

–240,0

00

– 104,0

00

+

32,000+

16,000 +

16,000Balance.................... $

432,000

$ 0

$ 0

$ 0

$ 64,00

0

$ 190,00

0

$ (10,00

0)

$ 188,00

0Payment of liabilities..................

– 64,00

0

– 64,00

0

Balance.................... $ 368,0

00

$ 0

$ 0

$ 0

$ 0

$ 190,00

0

$ (10,00

0)

$ 188,00

0Absorption of deficiency*...............

– 6,667

+ 10,000

– 3,333

Balance.................... $ 368,0

00

$ 0

$ 0

$ 0

$ 0

$ 183,33

3

$ 0

$184,667

*$10,000 × 2/3 = $6,667 to Wheaton (based on a remaining ratio of 2:1 or 2/3) $10,000 × 1/3 = $3,333 to Dun (based on a remaining ratio of 2:1 or 1/3)


Exercise 14-16 (30 minutes)1. Whiz Bam Boom Total Initial investments $115,60

0$

88,600 $95,80

0 $300,00

0 Allocation of all losses:

($300,000 – $30,000)/3...............

(90,000) (90,000)

(90,000)

(270,000)

Capital balances. . . $ 25,600

$ (1,400)

$ 5,800

$ 30,000

2.Dec. 31 Cash............................................. 1,400

Bam, Capital............................ 1,400 To record payment of deficiency.

31 Whiz, Capital................................. 25,600Boom, Capital................................ 5,800 Cash........................................ 31,40

0 To distribute remaining cash.

3. a)Dec. 31 Whiz, Capital................................. 700

Boom, Capital................................ 700 Bam, Capital............................ 1,400 To transfer deficiency to other partners.

b)Dec. 31 Whiz, Capital................................. 24,900

Boom, Capital................................ 5,100 Cash........................................ 30,00

0 To distribute remaining cash.


PROBLEMS

Problem 14-1A (50 minutes)a)Dec. 31

Income Summary............................. 351,000

Curtis Wall, Capital.................... 117,000

Jen Dock, Capital........................ 117,000

Lori Kent, Capital....................... 117,000

To close Income Summary.

b)Dec. 31

Income Summary............................. 351,000


Jen Dock, Capital........................ 122,850


To close Income Summary.**Supporting computations: ($132,800/$332,000) × $351,000 = $140,400 ($116,200/$332,000) × $351,000 = $122,850 ($83,000/$332,000) × $351,000 = $87,750

c)Dec. 31

Income Summary............................ 351,000


Jen Dock, Capital....................... 130,220


To close Income Summary.*

*Supporting calculations: Wall Dock Kent Total


Net income....................... $351,000

Salary allowances: Curtis Wall, Capital......................$104,

000 Jen Dock, Capital..........................$116,

000 Lori Kent, Capital......................... $

90,000

Interest allowances: Wall (10% on $132,800). 13,28

0 Dock (10% on $116,200) 11,62

0 Kent (10% on $83,000)...

8,3

00Total salaries and interest allocation..........................

$117,280

$127,620

$ 98,30

0

(343,2 00)

Bal. after interest and salaries.............................

$ 7,800

Balance allocated equally. 2,600 2,600 2,600 (7,80 0)

Balance of income............ $ 0

Shares of the partners...... $119,880

$130,220

$100,900

$351,000

Problem 14-2A (45 minutes)Preliminary calculations:Plan (a) & Plan (c)

Percentages based on initial investments:Bowtell = $66,000 / $165,000 = 40%Locke = $99,000 / $165,000 = 60%

Plan (b)

Percentages based on time:

Bowtell = (1/3) / (1/3 + 3/3) = 25%Locke = (3/3) / (1/3 + 3/3) = 75%

Plan (c) & Plan Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.156 Fundamental Accounting Principles, Twelfth Canadian Edition

(d)Salary allowance:Locke = 12 × $7,000 = $84,000

Plan (d)

Interest allowances:

Bowtell = 10% × $66,000 = $ 6,600Locke = 10% × $99,000 = $ 9,900

Plan a.Year Calculations

Share to

Bowtell

Share to Locke Total

1 Net loss.................................. $ (40,000)

40% × $40,000 loss.................$(16,000)

60% × $40,000 loss................. $(24,000)

2 Net income................ $ 120,000 40% x $120,000

income......................$

48,00060% x $120,000 income......................

$ 72,000

3 Net income................ $ 190,000 40% x $190,000

income......................$

76,00060% x $190,000 income......................

$114,000


Problem 14-2A (cont’d.)Plan b.

Year CalculationsShare

to Bowtel

l


1 Net loss..................... $ (40,000)

25% x $40,000 loss... . $(10,000)

75% x $40,000 loss... . $ (30,000)

2 Net income................ $ 120,000 25% x $120,000

income......................$

30,00075% x $120,000 income......................

$ 90,000

3 Net income................ $ 190,000 25% x $190,000

income......................$

47,50075% x $190,000 income......................

$142,500


Problem 14-2A (cont’d.)PLAN C.


to Bowtel

l


1 Net loss..................... $ (40,000)

Salary allowances......

$ 84,000Total salaries............. $

-0- $

84,000 $

(84,000)Balance of loss........... $ (124,000Remainder 40/60

(initial investment ratio):(–$124,000 × 40%)..... (49,60

0)(–$124,000 × 60%)..... (74,400) 124,000 Balance of loss........... ____

____ $ -


$( 49,60

$ 9,600

$ (40,000)

2 Net income................ $ 120,000


$ 84,000Total salaries............. $

-0- $

84,000 $

(84,000)Balance of income...... $ 36,000Remainder 40/60

(initial investment ratio):($36,000 × 40%)........ 14,400($36,000 × 60%)........ 21,600 36,000Balance of income...... ____

____ $ -


$ 14,400

$ 105,600

$ 120,000

3 Net income................ $ 190,000


$ 84,000Total salaries............. $

-0- $

84,000 $


(initial investment ratio):($106,000 × 40%)...... 42,400($106,000 × 60%)...... 63,600 106,000 Balance of income...... ____

____ $ -

0- Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 14 159

Shares to each partner

$ 42,400

$ 147,600

$ 190,000


Problem 14-2A (concluded)Plan d.


to Bowtel

l


1 Net loss..................... $ (40,000)


Interest allowances:($66,000 × 10%)........ 6,600($99,000 × 10%)........

9,90

0 Total salaries and interest.....................

$ 6,600

$ 93,900

$(100,500)Balance of loss........... $(140,500)Remainder equally:

(–$140,500 × 50%)..... (70,250)

(70,250) 140,500 Balance of loss........... ____ ____ $ -


$ (63,650

$ 23,650

$ (40,000)

2 Net income................ $ 120,000



9,90


$ 6,600

$ 93,900

$(100,500)Balance of income...... $

19,500Remainder equally:($19,500 × 50%)........ 9,750 9,750 19,500Balance of income...... ___ ____ $ -


$ 16,350

$103,650

$ 120,000

3 Net income................ $ 190,000



9,90

0 Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 14 161

Total salaries and interest.....................

$ 6,600

$ 93,900

$(100,500)Balance of income...... $

89,500Remainder equally:(89,500 × 50%).......... 44,750 44,750 89,500Balance of income...... ___ ____ $ -


$ 51,350

$ 138,650

$ 190,000Problem 14-3A (40 minutes)

Part 1

Income (Loss)

SharingPlan

Calculations Conway

Chan Seghal Total

(a) $780,000/3.................... $260,000

$260,000

$260,000

$780,000

(b) $780,000 × ($490,000/$1,400,000)....

$273,000

$780,000 × ($560,000/$1,400,000)....

$312,000

$780,000 × ($350,000/$1,400,000)....

$ 195,000

Total allocated............... $273,000

$312,000

$ 195,000

$780,000

(c) Net income.................... $780,000

Salary allowances........... $ 190,00

0

$ 92,000

$ 120,000

Balance of income..........Interest allowances: 12% × $490,000.......... 58,800 12% × $560,000.......... 67,200 12% × $350,000.......... 42,00

0 Total salary and interest allowances.....................

$248,800

$ 159,200

$ 162,00

0

(570,000

)

Bal. of income................ $210,000

Balance allocated equally 70,000 70,000 70,000 (210,000

)Balance of income..........

$ 0


Shares of partners.......... $318,800

$229,200

$232,000

$780,000

Part 2CCS Consulting

Statement of Partners’ EquityFor Year Ended December 31, 2011

Conway

Chan Seghal Total

Capital, January 1........ $ -0-

$ -0-

$ -0-

$ -0-

Add: Investments by partners......................

490,000

560,000

350,000

1,400,000

Net income............. 318,8 00

229,2 00

232, 000

780, 000

Total......................... $808,800

$789,200

$582,000

$2,180,000


80,0 00

60,0 00

40,0 00

180 ,000

Capital, December 31... $728,800

$729,200

$542,000

$2,000,000


Problem 14-3A (concluded)Part 3

Dec. 31

Income Summary............................ 780,000

Ben Conway, Capital................. 318,800

Ida Chan, Capital....................... 229,200

Clair Seghal, Capital.................. 232,000


Dec. 31

Ben Conway, Capital....................... 80,000

Ida Chan, Capital............................ 60,000Clair Seghal, Capital....................... 40,000 Ben Conway, Withdrawals......... 80,00

0 Ida Chan, Withdrawals.............. 60,00

0 Clair Seghal, Withdrawals.......... 40,00

0 To close withdrawals accounts.

Problem 14-4A (25 minutes)a)May

1Cash................................................ 200,00

0 Dent, Capital*............................. 200,0

00 To record admission of Dent.

*Supporting calculations: $168,000 + $138,000 + $294,000 = $600,000 ($600,000 + $200,000) × 25% = $200,000 No bonus received or paid.

b)May

1Cash................................................ 145,00

0.00Zeller, Capital ($41,250* × 3/10)....... 12,375.


00Acker, Capital ($41,250* × 2/10)....... 8,250.0

0Benton, Capital ($41,250* × 5/10)..... 20,625.

00 Dent, Capital.............................. 186,250

.00 To record Dent’s admission and bonus.

*Supporting calculations: ($600,000 + $145,000) × 25% = $186,250 $186,250 – $145,000 = $41,250 Bonus allocated to new partner.


Problem 14-4A (concluded)c)May 1

Cash.............................................. 262,000.00

Zeller, Capital ($46,500* × 3/10) 13,950.00

Acker, Capital ($46,500* × 2/10) 9,300.00

Benton, Capital ($46,500* × 5/10).............................................

23,250.00

Dent, Capital............................ 215,500.00

To record admission of Dent and bonus to old partners.

*Supporting calculations: ($600,000 + $262,000) × 25% = $215,500 $215,500 – $262,000 = $46,500 Bonus received by old partners.


Problem 14-5A (40 minutes)

a.2011

June 1 Cash.........................................................140,000

Equipment................................................180,000

Jill Bow, capital................................ 140,000

Aisha Amri, capital........................... 160,000

Note payable................................... 20,000

To record formation of partnership.

b.2011Nov. 20

Amri, withdrawals.....................................50,000

Cash................................................ 50,000

To record withdrawal by partner.

c.2012May 31

Income summary.......................................190,000

Jill Bow, capital................................ 122,600

Aisha Amri, capital........................... 67,400

To record closing of net income to capital.

Supporting calculations:Bow Amri Total

Net income................................ $190,000

Salary allowance: Bow......................................... $75,00

0 Interest allowances: Bow (8% on $140,000).............. 11,200 Amri (8% on $160,000).............

$12,80

0Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 14 167

Total salary and interest allowances...................................

$86,200

$12,800

(99,0 00)

Balance of income to be allocated...................................................

$ 91,000

Balance allocated 40/60: Bow (40% × $91,000)............... 36,400 Amri (60% × $91,000)............... 54,600 Total allocated equally............... (91,0

00) Balance of income...................... _ _____ ___ ___ $ -


00$67,40

0 $

190,000


Problem 14-5A (concluded)d.

2012June 1 Cash.........................................................60,00

0Bow, capital..............................................11,20

0Amri, capital.............................................16,80

0 Wilems, capital................................ 88,00

0 To record admission of Wilems for a 20% interest.

Supporting calculations:Bow, capital = $140,000 + $122,600 = $ 262,600Amri, capital = $160,000 – $50,000 + $67,400 = 177,400Total equity = $ 440,000

ORJill Bow, Capital

Aisha Amri, Capital Total Equity

140,000 160,000 122,600 50,000 67,400 262,600 + 177,400 = 440,000

Once the total equity of $440,000 is determined,

THEN:

Total equity = $440,000 x 20% = $88,000 – $60,000 = $28,000 bonus to new partner

$28,000 x .4 = $11,200 to Bow; $28,000 x .6 = $16,800 to Amri


Problem 14-6A (30 minutes) a)May 1

McLean, Capital............................. 138,000

Freedman, Capital.................... 138,000

To record admission of Freedman.

b)May 1

McLean, Capital............................. 138,000

Park, Capital............................ 138,000

To record admission of Park.

c)May 1

McLean, Capital............................. 138,000

Cash........................................ 138,000

To record withdrawal of McLean with no bonus.

d)May 1

McLean, Capital............................ 138,000

Gale, Capital ($264,000 – $138,000) × 3/8............................................

47,250

Lux, Capital ($264,000 – $138,000) × 5/8............................................

78,750

Cash....................................... 264,000

To record withdrawal of McLean with bonus.

e)May 1

McLean, Capital............................. 138,000

Accum. Amortization, Computer Equip............................................

166,000

Gale, Capital ($19,500* × 3/8)... 7,312.50

Lux, Capital ($19,500* × 5/8).... 12,187.50

Computer Equipment................ 230,00Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.170 Fundamental Accounting Principles, Twelfth Canadian Edition

0.00 Cash........................................ 54,500.

00 To record withdrawal of McLean with bonus to old partners.

*$138,000 – ($230,000 – $166,000 + $54,500) = –$19,500


Problem 14-7A (75 minutes)

Part 1a.

Cash Truck

Accum. Amort., Truck

Accounts

Payable

Jim Vonne, Capital

Milton Kent, Capita

l

Ty Johnso

n, Capita

l

Account balances June 30, 2011...................... $

55,000

$ 471,00

0

$ 110,00

0

$ 104,30

0 $ 61,000

$ 160,7

00

$ 90,00

0Sale of truck for $390,500*.................... +390,5

00

– 471,00

0

– 110,00

0 + 2,950

+ 11,80

0

+ 14,75

0Balance....................... $

445,500

$ 0

$ 0

$ 104,30

0

$ 63,950 $ 172,5

00

$ 104,7

50Payment of liabilities. . . –

104,300

–104,30

0Balance....................... $

341,200

$ 0

Distribution of cash to partners....................

– 341,20

0 –63,950

– 172,5

00

– 104,7

50Balance....................... $

0$ 0 $

0$ 0

* $471,000 – $110,000 = $361,000; $390,500 – $361,000 = $29,500 gain

$29,500 × 1/10 = $2,950 to Vonne $29,500 × 4/10 = $11,800 to Kent $29,500 × 5/10 = $14,750 to Johnson

b.

Cash Truck


Accounts

Jim Vonne, Capital

Milton Kent, Capita

Ty Johnso

n,


Payable

l Capital

Account balances June 30, 2011...........................

$ 55,000

$ 471,00

0

$110,000

$ 104,3

00 $ 61,000

$ 160,7

00

$ 90,00

0

Sale of truck for $300,000*........................

+300,0 00

– 471,00

0

– 110,00

0 – 6,100

– 24,40

0

– 30,50

0Balance............................ $

355,000

$ 0

$ 0

$ 54,900 $ 136,3

00

$ 59,50

0Payment of liabilities........ –

104,300

– 104,3

00Balance............................ $

250,700

$ 0

Distribution of cash to partners...........................

– 250,70

0 –54,900

– 136,3

00

– 59,50

0Balance............................ $

0$ 0 $

0$ 0

* $471,000 – $110,000 = $361,000; $300,000 – $361,000 = $61,000 loss$ 61,000 × 1/10 = $6,100 to Vonne$ 61,000 × 4/10 = $24,400 to Kent$ 61,000 × 5/10 = $30,500 to Johnson


Problem 14-7A (continued)c.

CashTruck(net)


Accounts

Payable

Jim Vonne, Capital

Milton Kent,

Capital

Ty Johnso

n, Capital

Account balances June 30, 2011..............................

$ 55,000

$ 471,000

$ 110,000

$ 104,300

$ 61,000

$ 160,700

$90,000

Sale of truck for $170,000*...........................

+170,000

– 471,000

–110,000 – 19,100 –76,400

–95,500

Balance...............................$225,000

$ 0

$ 0 $ 41,900

$ 84,300

$ (5,500

)

Payment of liabilities........... –104,30

0

–104,300

Balance............................... $ 120,70

0

$ 0

Johnson pays deficiency...........................

+ 5,500

+ 5,500

$ 126,20

0

$ 0

Distribution of cash to partners......................

–126,20

0 –

41,900 –84,300 Balance............................... $

0$ 0

$ 0

* $471,000 – $110,000 = $361,000; $170,000 – $361,000 = $191,000 loss$191,000 × 1/10 = $19,100 to Vonne$191,000 × 4/10 = $76,400 to Kent$191,000 × 5/10 = $95,500 to Johnson

d.

CashTruck(net)


Accounts

Payable

Jim Vonne, Capita

l

Milton Kent, Capita

l

Ty Johnso

n, Capital

Account balances June 30, 2011....................... $ $ $ $ $ $ $


55,000471,00

0110,00

0104,30

0 61,000160,70

0 90,000 Sale of truck for $150,000*.....................

+150 ,000

– 471,00

0

–110,00

0 –

21,100 –

84,400

– 105,50

0 Balance......................... $205,0

00$ 0

$ 0

$ 39,900

$ 76,300

$ ( 15,50

0)Payment of liabilities..... –

104,300

– 104,30

0Balance......................... $

100,700

$ 0

Allocation of deficiency*. – 3,100

– 12,400

+ 15,500

$ 36,800

$ 63,900

$ 0

Distribution of cash to partners........................

– 100,70

0 –

36,800 –

63,900Balance......................... $

0$ 0

$ 0

*$471,000 – $110,000 = $361,000; $150,000 – $361,000 = $211,000 loss

$211,000 × 1/10 = $21,100 to Vonne $211,000 × 4/10 = $84,400 to Kent $211,000 × 5/10 = $105,500 to Johnson

**$15,500 × 1/5 = $3,100 to Vonne $15,500 × 4/5 = $12,400 to Kent


Problem 14-7A (concluded)Part 2

2011June 30

Jim Vonne, Capital.....................................63,950

Milton Kent, Capital..................................172,500

Ty Johnson, Capital...................................104,750

Cash.................................................... 341,200

To record the final distribution of cash to the partners.

Problem 14-8A (30 minutes)a.2011Dec. 3

1Cash........................................... 600,00

0Accumulated Amortization........... 166,00

0 Property, Plant and Equipment..................................

428,000

Gain on Liquidation*.............. 338,000

To record sale of property, plant and equipment.

31

Gain on Liquidation..................... 338,000

Trish Craig, Capital................ 253,500

Ted Smith, Capital................. 84,500 To record allocation of gain to partners’ equity; 338,000 x ¾ = 253,500; 338,000 x ¼ = 84,500.

31

Accounts Payable........................ 42,000

Cash..................................... 42,000 To record payment of liabilities.


31

Trish Craig, Capital...................... 457,500

Ted Smith, Capital....................... 176,500

Cash..................................... 634,000

To record final distribution of cash; Trish Craig, Capital = 204,000 + 253,500 = 457,500; Ted Smith, Capital = 92,000 + 84,500 = 176,500; Cash = 76,000 + 600,000 – 42,000 = 634,000.


Problem 14-8A (concluded)*NOTE: Students may wish to combine the sale and allocation of gain as follows:Dec. 3

1Cash........................................... 600,00



428,000

Trish Craig, Capital................ 253,500

Ted Smith, Capital................. 84,500 To record sale of property, plant and equipment and allocation of gain to partners.

b.2011Dec. 3

1Cash........................................... 120,00


0Loss on Liquidation**................... 142,00


428,000


31


Ted Smith, Capital....................... 35,500 Loss on Liquidation................. 142,00

0 To record allocation of loss; 142,000 x ¾ = 106,500; 142,000 x ¼ = 35,500.

31



31



Ted Smith, Capital....................... 56,500 Cash..................................... 154,00

0 To record final distribution of cash; Trish Craig, Capital = 204,000 – 106,500 = 97,500; Ted Smith, Capital = 92,000 – 35,500 = 56,500; Cash = 76,000 + 120,000 – 42,000 = 154,000.

**NOTE: Students may wish to combine the sale and allocation of loss as follows:Dec. 3

1Cash........................................... 120,00


0Trish Craig, Capital...................... 106,50

0Ted Smith, Capital....................... 35,500 Property, Plant and Equipment..................................

428,000



Problem 14-1B (50 minutes)a)Dec. 31

Income Summary............................. 135,000

Paula Jones, Capital................... 45,000

Roy Rodgers, Capital.................. 45,000

Anne Jackson, Capital................. 45,000


b)Dec. 31

Income Summary............................. 135,000





*Supporting computations: ($92,400/$220,000) × $135,000 = $56,700 ($74,800/$220,000) × $135,000 = $45,900 ($52,800/$220,000) × $135,000 = $32,400

c)Dec. 31

Income Summary............................. 135,000





*Supporting calculations: Jones Rodgers

Jackson Total

Net income....................... $135,000


Salary allowances: Paula Jones, Capital..... $75,0

00 Roy Rodgers, Capital.... $40,50

0 Anne Jackson, Capital... $45,50

0 Interest allowances: Jones (10% on $92,400).. 9,240 Rodgers (10% on $74,800)...........................

7,480

Jackson (10% on $52,800)...........................

5,28 0

Total salaries and interest $84,240

$47,980

$50,780

183,000

Bal. after interest and salaries.............................

$ (48,00

0)Balance allocated equally.. (16,0

00)(16,00

0)(16,000

) 48,0

00 Balance of income............

$

0 Shares of the partners...... $68,2

40 $31,98

0 $34,78

0 $135,0

00

Problem 14-2B (45 minutes)Preliminary calculations:Plan (a) & Plan (c)

Percentages based on initial investments:Monroe = $49,800 / $124,500 = 40%Young = $74,700 / $124,500 = 60%

Plan (b)

Percentages based on time:

Monroe = (1/3) / (1/3 + 3/3) = 25%Young = (4/3) / (1/3 + 3/3) = 75%

Plan (c) & Plan (d)

Salary allowance:


Young = 12 × $5,250 = $63,000

Plan (d)

Interest allowances:

Monroe = 10% × $49,800 = $4,980Young = 10% × $74,700 = $7,470 = $12,450


Problem 14-2B (cont’d.)Plan a.


to Monro

e

Share to Young Total

1 Net income............................. $ 30,500

40% × $30,500 income...................................

$ 12,200

60% × $30,500 income...................................

$ 18,300

2 Net loss..................... $ (82,500) 40% x $82,500 loss.... $

(33,0060% x $82,500 loss.... $(49,500)

3 Net income................ $ 215,000 40% x $215,000

income......................$

86,00060% x $215,000 income......................

$129,000

Plan b.Year Calculations

Share to

Monroe


1 Net loss..................... $ 30,500

25% x $30,500 income $ 7,625

75% x $30,500 income $ 22,875

2 Net loss..................... $(82,500) 25% x $82,500 loss.... $(20,6

25)75% x $82,500 loss.... $(61,875)

3 Net income................ $215,000 25% x $215,000

income......................$

53,75075% x $215,000 income......................

$161,250


Problem 14-2B (cont’d.)PLAN C.


to Monro

e


1 Net income................ $ 30,500


$ 63,000Total salaries............. $

-0- $

63,000$

(63,000)Balance of income...... $ (32,500)Remainder 40/60

(initial investment ratio):(–$32,500 × 40%)....... (13,00

0)(–$32,500 × 60%)....... (19,500) 32,500 Balance of income...... ____

____ $ -


$( 13,00

$ 43,500

$ 30,500

2 Net loss..................... $ (82,500)


$ 63,000Total salaries............. $

-0- $

63,000$

(63,000)Balance of loss........... $(145,500)Remainder 40/60

(initial investment ratio):(-$145,500 × 40%)..... -

58,200(-$145,500 × 60%)..... -87,300 145,500Balance of loss........... ____

____ $ -


$ (58,20

$(24,300)

$ (82,500)

3 Net income................ $ 215,000


$ 63,000Total salaries............. $

-0- $

63,000$


(initial investment ratio):($152,000 × 40%)...... 60,800($152,000 × 60%)...... 91,200 152,000


Balance of income...... ____ ____

$ -0- Shares to each

partner$

60,800$

154,200$

215,000


Problem 14-2B (concluded)Plan d.


to Monro

e


1 Net income................ $ 30,500



7,47


$ 4,980

$ 70,470

$ (75,450)Balance of income...... $ (44,950)Remainder equally:

(–$44,950 × 50%)....... (22,475)

(22,475) 44,950 Balance of income...... ____ ____ $ -


$ (17,495

$ 47,995

$ 30,500

2 Net loss..................... $ (82,500)

Salary allowances...... $63,000 Interest allowances:($49,800 × 10%)........ 4,980($74,700 × 10%)........

7,47


$ 4,980

$ 70,470

$ (75,450)Balance of loss........... $(157,9

50)Remainder equally:(–$157,950 × 50%)..... (78,975

)(78,975) 157,950

Balance of loss........... ____ ____ $ -0- Shares to each

partner$

(73,995$

(8,505)$

(82,500)3 Net income................ $

215,000Salary allowances...... $

63,000 Interest allowances:($49,800 × 10%)........ 4,980($74,700 × 10%)........

7,47

0Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.186 Fundamental Accounting Principles, Twelfth Canadian Edition

Total salaries and interest.....................

$ 4,980

$ 70,470

$ (75,450)Balance of income...... $ 139,550Remainder equally:

(139,550 × 50%)........ 69,775 69,775 139,550Balance of income...... ____ ____ $ -


$ 74,755

$140,245

$ 215,000

Problem 14-3B (40 minutes) Part 1

Income (Loss)

SharingPlan

Calculations Vacon

Masters

Ramos

Total

(a)

$195,000/3................ $65,000

$65,000

$65,000

$195,000

(b)

$195,000 × ($116,640/$388,800). .

$58,500

$195,000 × ($129,600/$388,800). .

$65,000

$195,000 × ($142,560/$388,800). .

$71,500

Total allocated........... $58,500

$65,000

$71,500

$195,000

(c) Net income............... $195,000

Salary allowances..... $35,000

$20,000$45,000

Interest allowances: 10% × $116,640..... 11,664 10% × $129,600..... 12,960 10% × $142,560..... 14,256Total salary and interest....................

(138,8 80

)

Bal. of income.......... $ 56,120

Balance allocated equally....................

18,707 18,707 18,706* (56,12 0

)Balance of income..... _ _____ ____ __ $

0 Shares of partners.... $65,371

$51,667 $77,962 $195,000

*Decreased to $18,706 due to rounding.


Part 2

VMR PARTNERSHIPStatement of Partners’ Equity

For Year Ended December 31, 2011Vacon Maste

rsRamos Total

Capital, January 1........ $ -0-

$ -0-

$ -0-

$ -0-

Plus: Investments by owners........................

116,640

129,600

142,560

388,800

Net income............. 65, 371

51, 667

77,9 62

195,0 00

Total......................... $182,011

$181,267

$220,522

$583,800


15, 000

20, 000

23,0 00

58,0 00

Capital, December 31... $167,011

$161,267

$197,522

$525,800


Problem 14-3B (concluded) Part 3

Dec. 31

Income Summary...................... 195,000

Milton Vacon, Capital........... 65,371

Milford Masters, Capital....... 51,667

Marita Ramos, Capital......... 77,962


Dec. 31

Milton Vacon, Capital................ 15,000

Milford Masters, Capital............ 20,000Marita Ramos, Capital............... 23,000 Milton Vacon, Withdrawals. . 15,00

0 Milford Masters, Withdrawals.............................

20,000

Marita Ramos, Withdrawals. 23,000

To close withdrawals accounts.

Problem 14-4B (25 minutes)a)Nov. 30

Cash............................................... 76,500.00

Sung, Capital*........................... 76,500.00

To record admission of Sung.

*Supporting calculations: $306,000 + $76,500 = $382,500 $382,500 × 20% = $76,500 No bonus received or paid.

b)Nov. 30

Cash............................................... 54,000.00

Burke, Capital................................. 4,500.00


Comeau, Capital.............................. 9,000.00

LeJeune, Capital.............................. 4,500.00

Sung, Capital............................. 72,000.00

To record Sung’s admission and bonus.

*Supporting calculations:$306,000 + $54,000 = $360,000$360,000 × 20% = $72,000 to Sung$ 72,000 – $54,000 = $18,000$ 18,000 × 1/4 = $4,500 to Burke & LeJeune$ 18,000 × 2/4 = $9,000 to Comeau Bonus paid to new partner.

Problem 14-4B (concluded)c)Nov. 30

Cash............................................... 123,000.00

Comeau, Capital ($37,200* × 2/4)................................................

18,600.00

Burke, Capital ($37,200* × 1/4). . 9,300.00

Lejeune, Capital ($37,200* × 1/4)................................................

9,300.00

Sung, Capital............................. 85,800.00

To record admission of Sung and bonus to old partners.

*Supporting calculations:$306,000 + $123,000 = $429,000$429,000 × 20% = $85,800 to Sung$123,000 – $85,800 = $37,200 Bonus received by old partners.

Problem 14-5B (40 minutes)


a.2011

Nov. 1 Cash.........................................................80,000

Equipment................................................130,000

Truck........................................................60,000

Goth, Capital................................... 80,000

To, Capital....................................... 130,000

Selcido, Capital................................ 60,000

To record formation of partnership.


Problem 14-5B (concluded)b.

2012Oct. 31 Goth, Capital.............................................95,00

0 To, Capital....................................... 32,00

0 Selcido, Capital................................ 13,00

0 Income Summary............................. 50,00

0 To record closing of net loss to capital.

Supporting calculations:Goth To Selcido Total

Net loss..................................... $ (50,00

0) Salary allowance: Goth........................................$

-0- To............................................ $70,00

0 Selcido..................................... $70,00

0 Total salary................................ (140,

000) Balance of income to be allocated.....................................

$(190,000

Balance allocated 5:2:3: Goth (5/10 × $190,000).............(95,00

0) To (2/10 × $190,000)................ (38,00

0) Selcido (3/10 × $190,000)....................................

(57,000)

Total allocated equally............... 190,0 00

Balance of income......................

$ -0-

Shares of the partners................$(95,000)

$32,000

$13,000

$ (50,00

0)


c.2012

Nov. 1 To, Capital................................................10,000

Selcido, Capital.........................................15,000

Cash................................................ 10,000

Goth, Capital................................... 15,000

To record withdrawal of Goth.

Supporting calculations:Goth, Capital = $80,000 – $95,000 = $ (15,000) OR

$15,000 + $10,000 = $25,000 to allocate to remaining partners$25,000 × 2/5 = $10,000 absorbed by To$25,000 × 3/5 = $15,000 absorbed by Selcido


Goth, Capital 80,000

95,000 15,000

Problem 14-6B (50 minutes) a)Nov. 30

Lejeune, Capital.............................. 102,000

Devereau, Capital...................... 102,000

To record admission of Devereau.

b)Nov. 30

Lejeune, Capital.............................. 102,000

Shulak, Capital.......................... 102,000

To record admission of Shulak.

c)Nov. 30

Lejeune, Capital.............................. 102,000

Cash......................................... 102,000

To record withdrawal of Lejeune with no bonus.

d)Nov. 30

Lejeune, Capital.............................. 102,000

Burke, Capital ($129,000 – $102,000) × 1/3

9,000

Comeau, Capital ($129,000 – $102,000) × 2/3..............................

18,000

Cash......................................... 129,000

To record withdrawal of Lejeune with bonus.

e)Nov. 30

Lejeune, Capital.............................. 102,000

Accum. Amortization, Manufacturing Equipment......................................

45,000

Burke, Capital ($33,000* × 1/3). . 11,000

Comeau, Capital ($33,000* × 2/3) 22,000

Manufacturing Equipment.......... 78,00Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.194 Fundamental Accounting Principles, Twelfth Canadian Edition

0 Cash......................................... 36,00

0 To record withdrawal of Lejeune with bonus to old partners.

*$102,000 – ($78,000 – $45,000 + $36,000) = $33,000


Problem 14-7B (75 minutes)Part 1a.

Cash Equip.

Accum.

Amort.,

Equip.

A/P

Ernie Poppy

, Capit

al

Lynn Sweetb

ean Capital

Ned Olive, Capit

al

Account balances Oct. 15, 2011....................

$ 13,50

0$295,

600

$ 58,00

0

$ 56,70

0

$ 91,20

0$

60,000

$ 43,20

0

Sale of equipment for $270,000*..................

+270,000

–295,6

00

–58,00

0

+ 19,44

0+

6,480+

6,480Balance..................... $283,

500$ 0

$ 0

$110,640

$ 66,480

$ 49,68

0Payment of liabilities.. –

56,700

– 56,70

0Balance..................... $226,

800$ 0

Distribution of cash to partners..........

–226,8

00

–110,6

40–

66,480

– 49,68

0Balance..................... $

0$ 0

$ 0

$ 0

* $295,600 – $58,000 = $237,600; $270,000 – $237,600 = $32,400 gain$32,400 × 3/5 = $19,440 to Poppy$32,400 × 1/5 = $6,480 to Sweetbean and Olive

b.

Cash Equip.

Accum.

Amort.,

Equip.

A/P

Ernie Poppy

, Capit

al

Lynn SweetbeanCap

ital

Ned Olive, Capit

al

Account balances Oct. 15, 2011. . .

$ 13,500

$295,600 $

$ 56,70

$ 91,20

$ 60,000

$ 43,20


58,000 0 0 0

Sale of equipment for $170,100*.....

+170,100

–295,6

00

– 58,00

0

– 40,50

0–

13,500

– 13,50

0Balance................. $

183,600

$ 0

$ 0

$ 50,70

0

$ 46,500

$ 29,70

0Payment of liabilities –

56,700–

56,700

Balance................. $ 126,90

0

$ 0

Distribution of cash to partners.

–126,90

0

– 50,70

0–

46,500

–29,70

0Balance................. $

0$ 0

$ 0

$ 0

* $295,600 – $58,000 = $237,600; $170,100 – $237,600 = $67,500 loss$67,500 × 3/5 = $40,500 to Poppy$67,500 × 1/5 = $13,500 to Sweetbean and Olive


Problem 14-7B (continued)c.

Cash Equip.

Accum.

Amort.,

Equip.

A/P

Ernie Poppy, Capita

l

Lynn Sweetb

ean Capital

Ned Olive, Capit

al

Account balances Oct. 15, 2011. . .

$ 13,500

$ 295,600

$ 58,00

0

$ 56,70

0$

91,200 $

60,000

$ 43,20

0

Sale of equipment for $72,600*. .

+72,600

– 295,600

–58,00

0–

99,000 –

33,000

– 33,00

0Balance................. $

86,100$ 0

$ 0

$ (7,800

)

$ 27,000

$ 10,20

0Payment of liabilities...............

–56,700

–56,70

0Balance................. $

29,400$ 0

Poppy pays deficiency.............

+ 7,800

+ 7,800

$ 37,200

$ 0

Distribution of cash to partners................

–37,200

– 27,000

– 10,20

0Balance................. $

0$ 0

$ 0

* $295,600 – $58,000 = $237,600; $72,600 – $237,600 = $165,000 loss$165,000 × 3/5 = $99,000 to Poppy$165,000 × 1/5 = $33,000 to Sweetbean and Olive

d.

Cash Equip.

Accum. Amort.

, Equip.

A/P

Ernie Poppy, Capital

Lynn Sweetbe

an Capital

Ned Olive,

Capital

Account balances Oct. 15, 2011.

$ 13,500

$ 295,600

$58,000

$ 56,700

$ 91,200 $ 60,000

$43,200


Sale of equipment for $55,200*

+ 55,200

– 295,600

–58,000

–109,44

0 –36,480 –

36,480Balance............... $

68,700$ 0

$ 0

$ (18,24

0)

$ 23,520 $ 6,720

Payment of liabilities............

– 56,700

–56,700

Balance............... $ 12,000

$ 0

Allocation of deficiency**........

+ 18,240

– 9,120 – 9,120

$ 0

$ 14,400 $ (2,400)

Allocation of deficiency...........

– 2,400 + 2,400

$ 12,000 $ 0

Distribution of cash to partners.............

– 12,000 –12,000

Balance............... $ 0

$ 0

* $295,600 – $58,000 = $237,600; $55,200 – $237,600 = $182,400 loss $182,400 × 3/5 = $109,440 to Poppy $182,400 × 1/5 = $36,480 to Sweetbean and Olive

**$18,240 × 1/2 = $9,120 to Sweetbean and Olive


Problem 14-7B (concluded)

Part 22011

Oct. 15 Ernie Poppy, Capital..................................110,640

Lynn Sweetbean, Capital...........................66,480

Ned Olive, Capital.....................................49,680

Cash.................................................... 226,800

To record the final distribution of cash to the partners.

Problem 14-8B (30 minutes)a.2011Mar. 3

1Cash........................................... 450,00



389,000

Gain on Liquidation*.............. 275,000


31

Gain on Liquidation..................... 275,000

Leslie Bjorn, Capital.............. 165,000

Jason Douglas, Capital........... 55,000 Tom Pierce, Capital............... 55,000 To record allocation of gain to partners’ equity; 275,000 x 3/5 = 165,000; 275,000 x 1/5 = 55,000.

31




31

Leslie Bjorn, Capital..................... 257,000

Jason Douglas, Capital................. 161,000

Tom Pierce, Capital...................... 65,000 Cash..................................... 483,00

0 To record final distribution of cash; Leslie Bjorn = 92,000 + 165,000 = 257,000; Jason Douglas = 106,000 + 55,000 = 161,000; Tom Pierce = 10,000 + 55,000 = 65,000; Cash = 79,000 + 450,000 – 46,000 = 483,000.


Problem 14-8B (continued)

*NOTE: Students may wish to combine the sale and allocation of gain as follows:

Mar. 31

Cash........................................... 450,000

Accumulated Amortization........... 214,000

Property, Plant and Equipment..................................

389,000

Leslie Bjorn, Capital.............. 165,000

Jason Douglas, Capital........... 55,000 Tom Pierce, Capital............... 55,000 To record sale of property, plant and equipment and allocation of gain to partners.

b.2011Mar. 3

1Cash........................................... 110,00


0Loss on Liquidation **.................. 65,000 Property, Plant and Equipment..................................

389,000


31


Jason Douglas, Capital................. 13,000Tom Pierce, Capital...................... 13,000 Loss on Liquidation................. 65,000 To record allocation of loss; 65,000 x 3/5 = 39,000; 65,000 x 1/5 = 13,000.

31


Cash..................................... 46,000Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.202 Fundamental Accounting Principles, Twelfth Canadian Edition

To record payment of liabilities.

31

Cash........................................... 3,000

Tom Pierce, Capital............... 3,000 To record payment of deficiency by Pierce; Tom Pierce, Capital = 10,000 – 13,000 = (3,000).

31


Jason Douglas, Capital................. 93,000 Cash..................................... 146,00

0 To record final distribution of cash; Bjorn = 92,000 – 39,000 = 53,000; Douglas = 106,000 – 13,000 = 93,000; Cash = 79,000 + 100,000 – 46,000 + 3,000 = 146,000


Problem 14-8B (concluded)

**NOTE: Students may wish to combine the sale and allocation of gain as follows:

Mar. 31

Cash........................................... 110,000

Accumulated Amortization........... 214,000

Leslie Bjorn, Capital..................... 39,000Jason Douglas, Capital................. 13,000Tom Pierce, Capital...................... 13,000 Property, Plant and Equipment..................................

389,000

To record sale of property, plant and equipment and allocation of loss to partners.


A&R 14-1 (30 minutes)Loss from selling the assets:Total book value of assets................. $238,00

0 Total liabilities (before liquidation).. . $200,000 Total liabilities remaining after paying proceeds of asset sales to creditors..............

(45,000)

Cash proceeds from sale of assets... . (155,000)Loss on sale of assets*...................... $

83,000

*Alternative computation:1) $45,000 = $200,000 – Cash from assets sale (This implies cash from assets sale is $155,000)

2) Loss on sale of assets = Book value of assets – Cash received = $238,000 – $155,000 = $83,000

Prince Count Earl TotalCapital balances before loss liquidation $ 8,000 $

10,000$

20,000$

38,000Allocation of loss: $83,000 × 1/8.......... (10,375) $83,000 × 3/8.......... (31,125) $83,000 × 4/8..........

(41,50

0) (83,0

00)

Capital balances after loss..........................

$(2,375) $(21,125

) $(21,500) $(45,0

00)

Each partner should pay an amount equal to the debit balance in his or her capital account.

A&R 14-2 (30 minutes)Loss from selling the assets:Total book value of assets................. $238,0

00Total liabilities (before liquidation).... $200,00

0Total liabilities remaining after paying )Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 14 205

proceeds of asset sales to creditors...............

(45,000

Cash proceeds from sale of assets...... (155,000

)

Loss on sale of assets*....................... $ 83,000

*Alternative computation:1) $45,000 = $200,000 – Cash from assets sale (This implies cash from assets sale is $155,000)

2) Loss on sale of assets= Book value of assets – Cash received = $238,000 – $155,000 = $83,000A&R 14-2 (concluded)

Prince

Count Earl Total

Capital balances before loss liquidation $

8,000$

10,000$

20,000

$ 38,00

0Allocation of loss: $83,000 × 1/8.......... (10,3

75)

$83,000 × 4/8.......... (31,125

) $83,000 × 5/8..........

(41,5

00) (83,0

00)

Capital balances after loss...........................

$(2,375

) $(21,125

) $(21,500

) $(45,000

)

Allocation of Earl’s deficit $21,500 × 1/4 (5,37

5)

$21,500 × 3/4 (16,125) 21,50

0Cash to be paid to each partner

$(7,750

) $(37,250

) $ 0

$(45,000

)

Liability to be paid:


As a limited partner, Earl has no personal liability for the $45,000 liability. Therefore, Prince and Count must share the additional loss associated with Earl’s capital account.A&R 14-3

Part 1Scott McPee

kTotal

Net income................................ $72,000

First $60,000: Scott ....................................... $24,0

00 McPeek.................................... $36,0

00 Total interest allowances............ 60,00

0 Balance of income...................... $12,00

0 Balance allocated equally: Scott........................................ 6,000 McPeek.................................... 6,000 Total allocated equally............... Balance of income...................... _______ _______ 12,00

0 Shares of the partners................ $30,0

00$42,0

00$ -

0-

Part 2

a.Dec.

31Scott, Capital.................................. 40,00

0McPeek, Capital.............................. 40,00

0 Accounts Payable...................... 80,000 Entry to incorporate McPeek’s suggestion


A&R 14-3 (concluded) Part 2B.

Dec. 31

Scott, Capital.................................. 34,000

McPeek, Capital.............................. 46,000

Accounts Payable...................... 80,000 Entry to incorporate Scott’s suggestion

Supporting calculations:Scott McPeek

Credits to capital accounts for 2011, net income of $72,000.................. $30,0

00$42,00

0Debits that would have been made if $80,000 of additional expense had beenrecognized in 2011 {($72,000 – $80,000/2)}..............................................

4,000 4,000

Debits needed to correct capital accounts.. $34,000

$46,000

Part 3

Scott’s suggestion appears to be consistent with the partnership agreement. Because the accounts payable were in fact liabilities of the partnership on Dec. 31, 2011 they should have been recognized at that date. In addition, the expenses that created them should have been included in the calculation of net loss for 2011. There would not be an adequate justification for treating the correction of the error as a special charge against capital in 2011.

As a matter of equitability, notice that Scott’s capital account would be $6,000 lower under McPeek’s suggestion, and McPeek’s would be larger by the same amount.

ETHICS CHALLENGE

Since the net assets approximate $1,500,000, Paul is entitled to 1/3 of this amount. The assets should be revalued to Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.208 Fundamental Accounting Principles, Twelfth Canadian Edition

reflect their market value, and $500,000, not $300,000, should be distributed to Paul. Not to do so is clearly unethical on the part of Frank and Basil. The net assets should be revalued by $600,000, resulting in an additional $200,000 credit to each partner’s capital account before Paul’s retirement.


Focus on Financial Statements

FFS 14-1

WCL SalesBalance Sheet

December 31, 2011Assets Current assets: Cash........................................... $14,0

00 Accounts receivable.................... $46,0

00 Less: Allowance for doubtful accounts...........................................

1,20 0

44,800

Merchandise inventory................ 22,000

Prepaid rent............................... 36,0 00

Total current assets................... $116,800

Property, plant and equipment: Furniture.................................... $69,0

00 Less: Accumulated amortization 6,00

0$63,0

00 Fixtures...................................... $31,0

00 Less: Accumulated amortization.....................................

3,00 0

28,00 0

Total property, plant and equipment........................................

91,000

Intangible assets: Patent (net)................................ 14,0

00Total assets...................................... $221,

800

Liabilities Current liabilities: Accounts payable........................ $14,0

00 Unearned sales........................... 3,000 Current portion of long-term debt.................................................

7,0 00

$24,000


Total current liabilities............ Long-term liabilities: Notes payable, due 2014 (less $7,000 current portion).....................

27,0 00

Total liabilities............................... $ 51,00

0Partners’ Equity* Les Waruck, capital........................ $26,2

00 Kim Chau, capital........................... 91,92

0 Leena Manta, capital...................... 52,6

80 Total partners’ capital.................... 170,8

00Total liabilities and partners’ equity. . $

221,800


FFS 14-1 (continued)

*Calculations:

Calculation to determine distribution of $48,200 net loss:Waruck Chau Manta Total

Net loss................................. $ (48,200

)Salary allowances................... $

40,000$

80,000$

40,000 –

160,000

Balance of net loss over-allocated................................

$(208,200)

Balance allocated on ratio of beginning- of-period capital balances: Waruck [$208,200 x (68,250/273,000)]...................

(52,050)

Chau [$208,200 x (109,200/273,000)].................

(83,280)

Manta [$208,200 x (95,550/273,000)]...................

(72,87 0)

Total allocated on ratio of capital balances.............................

208, 200

Balance of net loss................. $ -0-

Allocation of net loss to each partner...........................

$(12,050)

$ (3,280)

$(32,870)

$ (48,200

)

Calculation to determine partners’ capital balances at December 31, 2011:

Waruck

Chau Manta Total

Capital balance at January 11, 2011.....................................

$68,250

$109,200

$95,550

$273,000

Allocation of net loss to partners’ capital....................

– 12,050

– 3,280

– 32,870

– 48,200

Partners’ withdrawals during the year................................

– 30,000

– 14,000

– 10,000

– 54,000

Capital balance at December $26,20 $ $52,68 $170,8Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.212 Fundamental Accounting Principles, Twelfth Canadian Edition

31, 2011............................... 0 91,920 0 00

Analysis component:WCL’s assets are financed 22.99% ($51,000/$221,800) by debt and 77.01% ($170,800/$221,800) by equity which compares favourably to the industry average of 60% and 40%, respectively. The relationship between type of financing and risk is that the greater the debt, the greater the risk. Therefore, WCL faces less risk in terms of debt financing relative to the industry average.

NOTE TO INSTRUCTOR: You may wish to point out to students that although WCL’s debt is low relative to the industry average, it may also indicate that they are not taking advantage of financial leveraging opportunities to grow the business … there are both positives and negatives associated with debt financing.


FFS 14-21. Danier is a corporation because the equity section on the

balance sheet is called Shareholders’ equity, a term restricted for corporate equity. On the income statement, income taxes have been deducted, indicating that Danier is a separate legal entity. Corporations are separate legal entities but sole proprietorships and partnerships are not.

2. WestJet is a corporation because the equity section on the balance sheet is called Shareholders’ Equity, a term restricted for corporate equity. On the income statement, income taxes have been deducted, indicating that WestJet is a separate legal entity. Corporations are separate legal entities but sole proprietorships and partnerships are not.


Critical Thinking Mini Case

CT 14-1

Note to instructor: Student responses will vary therefore the answer here is only suggested and not inclusive of all possibilities; it is presented in point form for brevity.Problem:

— how to get an additional $200,000 in financing

Goal*:— to get an additional $200,000 in financing (from the

perspective of the Mooth brothers, they will want financing that provides them with the greatest benefits at the least cost possible)

Principles:— incorporate cost/benefit principles (lowest cost with greatest benefit)

Facts:— as provided in the case study

Conclusions/Consequences:— The Mooth brothers could take on an additional

partner(s) but that partner(s) will want to share in the benefits realized by the partnership as a result … a mutually agreeable sharing agreement will have to be arrived at.

— The Mooth brothers could borrow the money which means interest costs will be incurred but then they won’t have to share in any benefits realized by the partnership

— This point has not yet been covered but more advanced students might raise the point: The Mooth brothers could issue preferred and/or common shares (issuing preferred shares would allow them to maintain control of the business).

*The goal is highly dependent on “perspective.”


chapter 13 - siast5 | material site of siast5 · web viewkay is still liable to her former partners...

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