PARTNERSHIP FORMATION QUIZ ANSWERS:

1.

Date Cash 500,000

Building 800,000
A, Capital 500,000
B, Capital 800,000

2.
Partnershi
  A B p
Cash 500,000 - 500,000
Accounts receivable
(100K – 20K) 80,000 - 80,000
Building (700K + 50K) 750,000 750,000
Mortgage payable (100,000) (100,000)
Capital credits 580,000 650,000 1,230,000

Date Cash 500,000

Accounts receivable 80,000
Building 750,000
Mortgage payable 100,000
A, Capital 580,000
B, Capital 650,000

3.
Actual Bonus
  contributions   method
A 40,000 (140,000 x 50%) 70,000
B 100,000 (140,000 x 50%) 70,000
Total 140,000 140,000

Date Cash 40,000

Equipment 100,000
A, Capital (40,000 + 30,000 bonus) 70,000
B, Capital (100,000 – 30,000 bonus) 70,000

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PARTNERSHIP OPERATION QUIZ ANSWERS:
PART 1:
Solution:
  A B C Total
Amount being allocated 100,000
Allocation:
1. Salaries 12,000 8,000 20,000
2. Bonus (100K – 20K) x 10% 8,000 8,000
4. Interest on cap.
(100K x 10%);(60K x 10%);(120K x 10%) 10,000 6,000 12,000 28,000
5. Allocation of remainder:
(100K – 20K – 8K – 28K) = 44K;
(44K x 40%); (44K x 30%); (44K x 30%) 17,600 13,200 13,200 44,000
As allocated 47,600 19,200 33,200 100,000

CASE #2:
Solution:
  A B C Total
Amount being allocated 10,000
Allocation:
1. Salaries 12,000 8,000 20,000
2. Bonus (N/A) - -
2. Interest on cap.
(100K x 10%);(60K x 10%);(120K x 10%) 10,000 6,000 12,000 28,000
6. Allocation of remainder
(10K – 20K – 28K) = -38K
(-38K x 40%); (-38K x 30%); (-38K x 30%) (15,200) (11,400) (11,400) (38,000)
As allocated 6,800 (5,400) 8,600 10,000

CASE #3:
Solution:
  A B C Total
Amount being allocated (20,000)
Allocation:
1. Salaries 12,000 8,000 20,000
2. Bonus (N/A) - -
2. Interest on cap.
(100K x 10%);(60K x 10%);(120K x 10%) 10,000 6,000 12,000 28,000
3. Allocation of remainder
(-20K – 20K – 28K) = -68K
(-68K x 40%); (-68K x 30%); (-68K x 30%) (27,200) (20,400) (20,400) (68,000)
As allocated (5,200) (14,400) (400) (20,000)

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PART 2:
Solution:
Partner A:
Balance, Jan. 1, 20x1 120,000 12/12 120,000
Withdrawal, May 1 (20,000) 8/12 (13,333)
Additional investment, Aug. 1 10,000 5/12 4,167
Withdrawal, Oct. 1 (10,000) 3/12 (2,500)
Weighted Ave. Capital 108,333

Partner B:
Balance, Jan. 1, 20x1 80,000 12/12 80,000
Withdrawal, May 1 (10,000) 8/12 (6,667)
Additional investment, July 1 20,000 6/12 10,000
Withdrawal, Oct. 1 (5,000) 3/12 (1,250)
Weighted Ave. Capital 82,083

Wtd. Ave.
Partners Cap.
A 108,333
B 82,083
Total 190,417

  A B Total
Amount being allocated 240,000
Allocation:
(240K x 108,333/190,417);
136,543 103,457 240,000
(240K x 82,083/190,417)
As allocated 136,543 103,457 240,000

WMG

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