Fundamental Accounting Principles Wild 19th Edition Solutions Manual

Fundamental Accounting Principles Wild 19th
Edition Solutions Manual
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Fundamental Accounting Principles Wild 19th Edition Solutions Manual
Chapter 12
Accounting for Partnerships
QUESTIONS
1. Under the circumstances described, the death, bankruptcy, or legal inability of a
partner to execute a 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.
2. Mutual agency means that each partner is an agent of the partnership and can
commit it to contracts that are within the normal scope of its business.
3. Yes, partners can limit the right of a partner. 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.
4. No, he does not have this right. A partnership is a voluntary association and
partners have the right to select the people with whom they associate as partners.
5. If partners agree on the method of sharing incomes, but say nothing of losses, then
any losses are shared in the same manner as income.
6. The allocation of net income to the partners is reported on the statement of partners'
equity.
7. 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.
8. All partners in a general partnership have unlimited liability. A limited partnership
includes both general and limited partners, and the limited partners have no
personal liability for partnership debts. Also, the general partners assume the
management duties of the partnership.
9. George's claim is not valid unless the previously agreed upon method of sharing net
incomes and losses granted George an annual salary allowance of $25,000. Unless
the partnership agreement says otherwise, partners have no claim to a salary
allowance in payment for their services.
10. No. Kay is still liable to her former partners for her share of the losses.
©McGraw-Hill Companies, 2009

Solutions Manual, Chapter 12 657
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11. At all times in the accounting history of a partnership (or any organization), assets
must equal liabilities plus 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 claims (equity) of the partners.
12. The remaining partners should share the decline in their equities in accordance with
their income-and-loss-sharing ratio.
QUICK STUDIES
Quick Study 12-1 (10 minutes)
a. The partnership will need to pay because it is a merchandising firm.

That is, if the vendor knows nothing to the contrary, the vendor can
assume that Hunan has the right, because of mutual agency, to bind the
firm to contracts for the purchase of merchandise.
b. A public accounting firm is not in the merchandising business.

Consequently, 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 Hunan is acting as the agent for the partnership. Hence,
the partnership probably will not have to pay.

Stolton Bright Total
Net income............................................. $104,000
Salary allowances
Stolton ................................................. $30,000
Bright ................................................... $40,000
Total salary allowances ..................... 70,000
Balance of income ................................ 34,000
Balance allocated equally
Stolton ................................................. 17,000
Bright ................................................... 17,000
Total allocated equally ....................... 34,000
Balance of income ................................ ______ ______ $ 0
Shares of the partners .......................... $47,000 $57,000

658 Fundamental Accounting Principles, 19th Edition
If Hiram is allocated a $50,000 salary allowance and there remains $2,000 to

be divided equally, giving Tyrone $1,000, then this shows that the
partnership must have earned net income of $52,000.
Since Xavier is a limited partner, he is not personally liable for any unpaid
debts of the partnership. Therefore, the partnership’s creditors cannot
pursue Xavier’s personal assets.
Choi, Capital .............................................................................. 20,000

Amal, Capital ............................................................................. 20,000
Dresden, Capital................................................................... 40,000
To record admission of Dresden by purchase.
Cash ........................................................................................... 80,000

Brantford, Capital................................................................. 80,000
To record admission of Brantford.
Total partnership return on equity = Net Income/Average equity

= $49,000 / ($300,000 + $400,000)/2
= $49,000 / $350,000 = 14.0%
Paulson partner return on equity = Partner net income/Average partner equity

= $38,400 / ($200,000 + $280,000)/2
= $38,400 / $240,000 = 16.0%
Fleming partner return on equity = Partner net income/Average partner equity

= $10,600 / ($100,000 + $120,000)/2
= $10,600 / $110,000 = 9.6%

EXERCISES
Exercise 12-1 (15 minutes)
Characteristic General Partnerships
1. Life Limited
2. Owners’ liability Unlimited
3. Legal status Not separate from partners
4. Tax status of income Taxed only once
5. Owners’ authority Mutual agency
6. Ease of formation Requires only an agreement
7. Transferability of ownership Difficult to transfer
8. Ability to raise large amounts of capital Low ability

a. Recommended Organization: Sharif, Henry, and Saanen might first
consider organizing their business as a general partnership. However, a
problem for these 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, a better course of
action is probably to incorporate. In this way they might be able to find
investors to contribute capital for stock. They can structure the
financing so that they remain the major stockholders in the company.
Taxation: As a corporation, any income will be subject to corporate
income tax. Any dividends paid to the stockholders will also normally
be taxed, but at a much lower level. Moreover, some lower income
taxpayers could potentially pay little or no dividend tax. Any salaries
that Sharif, Henry, and Saanen pay themselves will be a tax-deductible
expense for the business.
Advantages: Several key advantages to the corporate form include its
limited liability and the potential to sell more stock if additional funds
are needed.
b. Recommended Organization: The two doctors should form a

partnership. A general partnership will have the disadvantage of
unlimited liability so they probably want to consider a limited liability
partnership. The partnership can borrow funds from the bank to obtain
the initial needed capital for the business.
Taxation: The owners will pay individual taxes on income earned by the
partnership but the partnership will not be taxed.
Advantages: The advantages of the partnership are ease of formation
and owner authority.
c. Recommended Organization: Novato should consider setting up 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.
Taxation: All partners will pay individual taxes on income distributed to
them, but the partnership entity will not pay income tax.
Advantages: The advantages to Novato will be the authority over the
partnership that he will have as general partner and the ease of raising
capital.

1a. 2009
Mar. 1 Cash .......................................................................... 83,000
Land .......................................................................... 66,400
Building .................................................................... 96,400
Long-Term Note Payable .................................. 77,800
Eckert, Capital .................................................... 83,000
Kelley, Capital .................................................... 85,000
To record initial capital investments.
1b. 2009
Oct. 20 Eckert, Withdrawals ................................................. 32,000
Kelley, Withdrawals .................................................. 25,000
Cash ..................................................................... 57,000
To record partners’ withdrawals.
1c. 2009
Dec. 31 Eckert, Capital .......................................................... 32,000
Kelley, Capital ........................................................... 25,000
Eckert, Withdrawals ........................................... 32,000
Kelley, Withdrawals............................................ 25,000
To close withdrawals accounts.
Dec. 31 Income Summary ..................................................... 86,000
Eckert, Capital .................................................... 58,140
Kelley, Capital ..................................................... 27,860
To close Income Summary account.*
2.
Capital account balances Eckert Kelley
Initial investment ................................$ 83,000 $ 85,000
Withdrawals ........................................ (32,000) (25,000)
Share of income* ................................ 58,140 27,860
Ending balances .................................$109,140 $ 87,860
*Supporting calculations Eckert Kelley Total

Net income ................................................................. $86,000
Salary allowance
Eckert .........................................................................
$30,500
Total salary allowance ............................................... 30,500
Balance of income ..................................................... 55,500
Interest allowances
Eckert (11% on $83,000) ..........................................
9,130
Kelley (11% on $85,000) ........................................... $ 9,350
Total interest allowances........................................... 18,480
Balance of income ..................................................... 37,020
Eckert ........................................................................
18,510
Kelley ........................................................................
18,510
Total allocated equally ............................................... 37,020
Balance of income .......................................................
_______ _______ $ 0
Shares of the partners .................................................
$58,140 $27,860

Daria Farrah Total
Plan (1) $175,000 x 1/2 ...............................................

$87,500 $87,500 $175,000
Plan (2) ($64,000/$122,000) x $175,000 .....................

$91,803 $ 91,803
______
($58,000/$122,000) x $175,000 ..................... $83,197 83,197
$91,803 $83,197 $175,000
Plan (3) Net income .................................................... $175,000

Salary allowances ........................................
$52,000 $42,000 94,000
Interest allowances
($64,000 x 8%).............................................
5,120 5,120
($58,000 x 8%)............................................. 4,640 4,640
Total salary and interest .............................. 103,760
Balance of income ........................................ 71,240

($71,240 / 2) ...................................................
35,620 35,620 71,240
Balance of income ......................................... . $ 0
Shares of each partner ................................
$92,740 $82,260

Daria Farrah Total
1. Net income.................................................... $ 98,800

$52,000 $ 42,000 94,000
Interest allowances
($64,000 x 8%) ............................................
5,120 5,120
($58,000 x 8%) ............................................ 4,640 4,640
Total salaries and interest .......................... 103,760
Balance of income ....................................... (4,960)
Remainder equally
($4,960)/2.......................................................
(2,480) (2,480) (4,960)
Balance of income .......................................
_______ _______ $ 0
Shares each partner ....................................
$54,640 $ 44,160
2. Net income.................................................... $ (16,800)

$52,000 $ 42,000 94,000
Interest allowances
($64,000 x 8%) ............................................
5,120 5,120
($58,000 x 8%) ............................................ 4,640 4,640
Total salaries and interest .......................... 103,760
Balance of income ....................................... (120,560)
Remainder equally
$(120,560)/2...................................................
(60,280) (60,280) (120,560)
Balance of income .......................................
_______ _______ $ 0
Shares of each partner ................................
$ (3,160) $(13,640)
Sept. 30 Estella, Capital ..........................................................

111,000
Sean, Capital ....................................................... 111,000
To record admission of Sean.

1.
Nov. 1 Cash ...........................................................................62,000
Nillsen, Capital .................................................... 62,000
To record admission of Nillsen
[($558,000 + $62,000) x 10%].
2.
Nov. 1 Cash ..........................................................................97,000
Nillsen, Capital ................................................... 65,500
Dopke, Capital .................................................... 26,775
Hughes, Capital .................................................. 4,725
To record admission of Nillsen.
Supporting computations
$558,000 + $97,000 = $655,000
$655,000 x 10% = $65,500
$97,000 - $65,500 = $31,500
$31,500 x 85% = $26,775
$31,500 x 15% = $4,725
3.
Nov. 1 Cash ..........................................................................32,000
Dopke, Capital ..........................................................22,950
Hughes, Capital ........................................................ 4,050
Nillsen, Capital ................................................... 59,000
To record admission of Nillsen.
Supporting computations
$558,000 + $32,000 = $590,000
$590,000 x 10% = $59,000
$32,000 - $59,000 = $(27,000)
$(27,000) x 85% = $(22,950)
$(27,000) x 15% = $(4,050)

1.
Jan. 31 West, Capital .............................................................
165,000
Cash .................................................................... 165,000
To record retirement of West.
2.
Jan. 31 West, Capital .............................................................
165,000
Edison, Capital* ........................................................15,000
Delray, Capital** .......................................................12,000
Cash .................................................................... 192,000
* (5/9 x $27,000)
**(4/9 x $27,000)
3.
Jan. 31 West, Capital .............................................................
165,000
Edison, Capital* .................................................. 20,000
Delray, Capital** ................................................. 16,000
Cash .................................................................... 129,000
* (5/9 x $36,000)
**(4/9 x $36,000)

1.
Red White Blue Total
Initial investments .............. $153,000 $183,000 $180,000 $516,000
Allocation of all losses
($516,000 - $39,000)/3 ....... (159,000) (159,000) (159,000) (477,000)
Capital balances ................. $ (6,000) $ 24,000 $ 21,000 $ 39,000
2. a)
Aug. 31 Cash .......................................................................... 6,000
Red, Capital ........................................................ 6,000
To record payment of deficiency.
b)
Aug. 31 White, Capital ...........................................................24,000
Blue, Capital .............................................................21,000
Cash .................................................................... 45,000
To distribute remaining cash.
3. a)
Aug. 31 White, Capital ........................................................... 3,000
Blue, Capital ............................................................. 3,000
Red, Capital ........................................................ 6,000
To transfer deficiency to other partners.
b)
Aug. 31 White, Capital ...........................................................21,000
Blue, Capital .............................................................18,000
Cash .................................................................... 39,000
To distribute remaining cash.

a. Loss from selling assets

Total book value of assets ............................................. $117,000
Total liabilities (before liquidation)................................
$87,750
Total liabilities remaining after paying
proceeds of asset sales to creditors ..........................
(20,500)
Cash proceeds from sale of assets ............................... (67,250)
Loss on sale of assets* .................................................. $ 49,750
* Alternative computation
1) $20,500 = $87,750 - Cash from assets’ sale
(This implies cash from sale of assets is $67,250)
2) Loss on sale of assets = Book value of assets - Cash received
= $117,000 - $67,250 = $49,750
b. Loss allocation
Brewster Conway Ogden Total
Capital balances before
loss liquidation $ 1,600 $ 11,600 $ 16,050 $ 29,250
Allocation of loss
$49,750 x 1/10 ....................... (4,975)
$49,750 x 5/10 ....................... (24,875)
$49,750 x 4/10 ....................... ______ _______ (19,900) (49,750)
Capital balances after loss ..... $(3,375) $(13,275) $ (3,850) $(20,500)
c. Liability to be paid
Each partner should pay the amount of the debit (deficit) balance in his
or her own capital account.

a. Loss from selling assets
Total book value of assets ............................................. $117,000
Total liabilities before liquidation ..................................$87,750
Total liabilities remaining after paying proceeds
of asset sales to creditors ............................................ (20,500)
Cash proceeds from sale of assets ............................... (67,250)
Loss on sale of assets .................................................... $ 49,750
b. Loss and deficit allocation

Brewster Conway Ogden Total
Capital balances before loss $ 1,600 $ 11,600 $ 16,050 $ 29,250
Allocation of loss
$49,750 x 1/10 ....................... (4,975)
$49,750 x 5/10 ....................... (24,875)
$49,750 x 4/10 ....................... ______ _______ (19,900) (49,750)
Capital balances after loss ..... (3,375) (13,275) (3,850) $(20,500)
Allocation of Ogden's deficit
to Brewster and Conway
$3,850 x 1/6* .......................... (642)
$3,850 x 5/6* .......................... ______ (3,208) 3,850 _________
Cash paid by each partner $(4,017) $(16,483) $ 0 $(20,500)
*rounded
c. Liability to be paid
As a limited partner, Ogden has no personal liability for the $20,500
liability. Therefore, Brewster and Conway must share the loss reflected
in Ogden's capital account deficit as shown above.
Hunt Sports Enterprises LP:

Return on equity: $761,208 / [($1,688,100 + $2,384,308)/2] = 37.4%
Soccer LP:
Partner return on equity: $35,405 / [($331,000 + $366,405)/2] = 10.2%
Football LP:
Partner return on equity: $725,803 / [($1,357,100 + $2,017,903)/2] = 43.0%

PROBLEM SET A
Problem 12-1A (50 minutes)
1.
Dec. 31 Income Summary .....................................................391,200
Alex Jeffers, Capital .......................................... 130,400
Jo Ford, Capital ................................................. 130,400
Rose Verne, Capital ........................................... 130,400
To close Income Summary.
2.
Jo Ford, Capital ................................................. 136,920
To close Income Summary*.
*Supporting computations
($32,500/$130,000) x $391,200 = $97,800
($45,500/$130,000) x $391,200 = $136,920
($52,000/$130,000) x $391,200 = $156,480
3.
Jo Ford, Capital ................................................. 125,240
To close Income Summary*.
*Supporting calculations Jeffers Ford Verne Total
Net income ................................................ $391,200
Salary allowances
Jeffers .....................................................
$ 40,000
Ford ........................................................ $ 35,000
Verne....................................................... $ 46,000
Total salaries ............................................. 121,000
Balance after salary allowances .............. 270,200
Interest allowances
Jeffers (8% on $32,500) ......................... 2,600
Ford (8% on $45,500) ............................. 3,640
Verne (8% on $52,000) ........................... 4,160
Total interest ............................................. 10,400
Bal. after interest and salaries ................. 259,800
Balance allocated equally ........................ 86,600 86,600 86,600
Total allocated equally ............................. 259,800
Balance of income .................................... _______ _______ _______ $ 0
Shares of the partners .............................. $129,200 $125,240 $136,760

Preliminary calculations
Plan (a) & Plan (c) Percentages based on initial investments
Watts = $30,000/$75,000 = 40%
Thomas = $45,000/$75,000 = 60%
Plan (b) Percentages based on time

Watts = 0.5/1.5 = 1/3 = 33 1/3%
Thomas = 1.0/1.5 = 2/3 = 66 2/3%
Plan (c) & Plan (d) Salary allowance

Thomas = 12 x $3,000 = $36,000
Plan (d) Interest allowances

Watts = 10% x $30,000 = $ 3,000
Thomas = 10% x $45,000 = $ 4,500
Income (Loss) Year 1

Sharing Plan Calculations Watts Thomas
(a) 40% x $18,000 loss ...................................................

$ (7,200)
60% x $18,000 loss ................................................... $(10,800)
(b) 33 1/3% x $18,000 loss .............................................

$ (6,000)
66 2/3% x $18,000 loss ............................................. $(12,000)
(c) Salary allowance ...................................................... $ 36,000

40% x ($18,000 loss + $36,000 salary) .................... $(21,600)
60% x ($18,000 loss + $36,000 salary) .................... ________ (32,400)
Totals .........................................................................
$(21,600) $ 3,600
(d) Salary allowance ...................................................... $ 36,000

Interest allowances .................................................. $ 3,000 4,500
50% x ($18,000 loss + $36,000
salary + $7,500 interest) ....................................... (30,750) (30,750)
Totals .........................................................................
$(27,750) $ 9,750

Problem 12-2A (Concluded)

(a) 40% x $45,000 income .............................................
$18,000
60% x $45,000 income ............................................. $27,000
(b) 33 1/3% x $45,000 income .......................................

$15,000
66 2/3% x $45,000 income ....................................... $30,000
(c) Salary allowance ...................................................... $36,000

40% x ($45,000 income - $36,000 salary) .................. $ 3,600
60% x ($45,000 income - $36,000 salary) .................. _______ 5,400
Totals .........................................................................
$ 3,600 $41,400
(d) Salary allowance ...................................................... $36,000

50% x ($45,000 income - $36,000
salary - $7,500 interest) ........................................750 750
Totals .........................................................................
$ 3,750 $41,250

(a) 40% x $75,000 income .............................................
$30,000
60% x $75,000 income ............................................. $45,000
(b) 33 1/3% x $75,000 income .......................................

$25,000
66 2/3% x $75,000 income ....................................... $50,000
(c) Salary allowance ...................................................... $36,000

40% x ($75,000 income - $36,000 salary) ............... $15,600
60% x ($75,000 income - $36,000 salary) ............... _______ 23,400
Totals .........................................................................
$15,600 $59,400
(d) Salary allowance ...................................................... $36,000

50% x ($75,000 income - $36,000
salary - $7,500 interest) ........................................15,750 15,750
Totals .........................................................................
$18,750 $56,250

Part 1
Income (Loss)
Sharing Plan Calculations Will Trevor Barb Total
(a) $210,000/3 .............................................................................

$ 70,000 $ 70,000 $ 70,000 $210,000
(b) $210,000 x ($142,500/$475,000) ..........................................

63,000
$210,000 x ($118,750/$475,000) ..........................................
52,500
$210,000 x ($213,750/$475,000) ..........................................
______ ______ 94,500
Total allocated ......................................................................
$ 63,000 $ 52,500 $ 94,500 $210,000
(c) Net income............................................................................ $210,000

Salary allowances ................................................................
$ 38,000 $ 28,000 $ 43,000 (109,000)
Balance of income ............................................................... 101,000
Interest allowances
10% x $142,500 ..................................................................
14,250
10% x $118,750 ..................................................................
11,875
10% x $213,750 .................................................................. 21,375
Total interest......................................................................... (47,500)
Bal. of income ...................................................................... 53,500
Balance allocated ....................................................
17,833 equally 17,833 17,833 (53,500)*
Balance of income ............................................................... $ 0
Shares of partners .................................................
$ 70,083 partners $ 57,708 $ 82,208
*
Rounding difference of $1.

Part 2
BBB PARTNERSHIP
Statement of Partners' Equity
For Year Ended December 31
Will Trevor Barb Total
Beginning capital balances ..............
$ 0 $ 0 $ 0 $ 0
Plus
Investments by owners ..................
142,500 118,750 213,750 475,000
Net income
Salary allowances ..........................
38,000 28,000 43,000
Interest allowances .......................
14,250 11,875 21,375
Balance allocated equally .............
(23,000) (23,000) (23,000)
Total net income ............................
29,250 16,875 41,375 87,500
Total ....................................................
171,750 135,625 255,125 562,500
Less partners' withdrawals .............
(18,000) (25,000) (34,000) (77,000)
Ending capital balances ...................
$153,750 $110,625 $221,125 $485,500
Part 3
Dec. 31 Income Summary .....................................................

87,500
Will Beck, Capital ............................................... 29,250
Trevor Beck, Capital........................................... 16,875
Barb Beck, Capital.............................................. 41,375
Dec. 31 Will Beck, Capital .....................................................

18,000
Trevor Beck, Capital................................................. 25,000
Barb Beck, Capital ....................................................
34,000
Will Beck, Withdrawals ...................................... 18,000
Trevor Beck, Withdrawals ................................. 25,000
Barb Beck, Withdrawals .................................... 34,000

Part 1
a)
Feb. 1 Zarcus, Capital ......................................................... 179,000
Garcia, Capital ..................................................... 179,000
To record admission of Garcia.
b)
Fields, Capital..................................................... 179,000
To record admission of Fields.
c)
Cash .................................................................... 179,000
To record withdrawal of Zarcus with no bonus.
d)
Meir, Capital* ............................................................ 6,000
Ross, Capital** ......................................................... 30,000
Cash .................................................................... 215,000
To record withdrawal of Zarcus with bonus.
* ($215,000 - $179,000) x 1/6
**($215,000 - $179,000) x 5/6
e)
Accumulated Depreciation—Equipment ............... 23,200
Meir, Capital* ...................................................... 18,700
Ross, Capital** ................................................... 93,500
Equipment .......................................................... 70,000
Cash .................................................................... 20,000
To record withdrawal of Zarcus with bonus to
old partners.
* [$179,000 - ($70,000 - $23,200 + $20,000)] x 1/6.
**[$179,000 - ($70,000 - $23,200 + $20,000)] x 5/6.

Part 2
a)
Feb. 1 Cash .......................................................................... 150,000
Potter, Capital* ................................................... 150,000
To record admission of Potter.
*Supporting calculations
$43,000 + $179,000 + $228,000 = $450,000
($450,000 + $150,000) x 25% = $150,000
Thus, no bonus is received or paid.
b)
Feb. 1 Cash .......................................................................... 110,000
Meir, Capital ($30,000* x 1/10) ................................. 3,000
Zarcus, Capital ($30,000* x 4/10) ............................ 12,000
Ross, Capital ($30,000* x 5/10) ............................... 15,000
Potter, Capital..................................................... 140,000
To record Potter’s admission and bonus.
* Supporting calculations
($450,000 + $110,000) x 25% = $140,000
$110,000 - $140,000 = $(30,000)
Thus, a bonus is paid to new partner.
c)
Feb. 1 Cash .......................................................................... 196,000
Meir, Capital ($34,500* x 1/10) ........................... 3,450
Zarcus, Capital ($34,500* x 4/10) ...................... 13,800
Ross, Capital ($34,500* x 5/10) ......................... 17,250
Potter, Capital..................................................... 161,500
To record admission of Potter and bonus to old partners.
($450,000 + $196,000) x 25% = $161,500
$196,000 - $161,500 = $34,500
Thus, old partners receive a bonus.

Note: All entries in this problem are dated May 31.
1.
(a) Cash ..........................................................................
625,200
Inventory ............................................................. 548,400
Gain on Sale of Inventory ................................. 76,800
(b) Gain on Sale of Inventory .......................................76,800

Kendra, Capital ($76,800 x 3/6) ......................... 38,400
Cogley, Capital ($76,800 x 2/6) ......................... 25,600
Mei, Capital ($76,800 x 1/6) ............................... 12,800
(c) Accounts Payable .................................................... 258,000

Cash .................................................................... 258,000
(d) Kendra, Capital ($97,900+ $38,400) ............................ 136,300

Cogley, Capital ($220,275 + $25,600) ......................... 245,875
Mei, Capital ($171,325 + $12,800) ........................... 184,125
Cash .................................................................... 566,300
2.
(a) Cash ..........................................................................
452,400
Loss on Sale of Inventory .......................................96,000
Inventory ............................................................. 548,400
(b) Kendra, Capital ($96,000 x 3/6) ...............................48,000

Cogley, Capital ($96,000 x 2/6) ...............................32,000
Mei, Capital ($96,000 x 1/6) .....................................16,000
Loss on Sale of Inventory ................................. 96,000

Cash .................................................................... 258,000
(d) Kendra, Capital ($97,900 - $48,000) ........................49,900

Cogley, Capital ($220,275 - $32,000) ...................... 188,275
Mei, Capital ($171,325 - $16,000) ............................ 155,325
Cash .................................................................... 393,500

3.
(a) Cash .......................................................................... 321,000
Loss on Sale of Inventory ....................................... 227,400
Inventory ............................................................. 548,400
(b) Kendra, Capital ($227,400 x 3/6) ............................. 113,700

Cogley, Capital ($227,400 x 2/6) ............................. 75,800
Mei, Capital ($227,400 x 1/6) ................................... 37,900
Cash .......................................................................... 15,800

Kendra, Capital ($97,900 - $113,700) ................ 15,800

Cash .................................................................... 258,000
(d) Cogley, Capital ($220,275 - $75,800) ...................... 144,475

Mei, Capital ($171,325 - $37,900) ............................ 133,425
Cash .................................................................... 277,900
4.
(a) Cash .......................................................................... 249,000
Loss on Sale of Inventory ....................................... 299,400
Inventory ............................................................. 548,400
(b) Kendra, Capital ($299,400 x 3/6) ............................. 149,700

Cogley, Capital ($299,400 x 2/6) ............................. 99,800
Mei, Capital ($299,400 x 1/6) ................................... 49,900
Cogley, Capital ($51,800 x 2/3) ............................... 34,533

Mei, Capital ($51,800 x 1/3) ..................................... 17,267
Kendra, Capital ($97,900 - $149,700) ................... 51,800

Cash .................................................................... 258,000
(d) Cogley, Capital*........................................................ 85,942

Mei, Capital** ............................................................ 104,158
Cash .................................................................... 190,100
*$220,275 - $99,800 - $34,533
**$171,325 - $49,900 - $17,267

PROBLEM SET B
Problem 12-1B (50 minutes)
1.
Erin Rock, Capital .............................................. 120,600
Sal Arthur, Capital ............................................. 120,600
Chloe Binder, Capital ........................................ 120,600
2.
To close Income Summary.*
*Supporting computations
($47,840/$184,000) x $361,800 = $94,068
($64,400/$184,000) x $361,800 = $126,630
($71,760/$184,000) x $361,800 = $141,102
3.
To close Income Summary.*
*Supporting calculations Rock Arthur Binder Total
Net income ................................................ $361,800
Salary allowances
Rock ........................................................
$ 33,000
Arthur...................................................... $ 28,000
Binder ..................................................... $ 40,000
Total salaries ............................................. 101,000
Balance after salary allowances .............. 260,800
Interest allowances
Rock (10% on $47,840) ..........................4,784
Arthur (10% on $64,400) ........................ 6,440
Binder (10% on $71,760) ........................ 7,176
Total interest ............................................. 18,400
Bal. after interest and salaries ................. 242,400
Balance allocated equally ........................ 80,800 80,800 80,800
Total allocated equally .............................
242,400
Balance of income ....................................
_______ _______ ______ $ 0
Shares of the partners ..............................
$118,584 $115,240 $127,976

Preliminary calculations
Plan (a) & Plan (c) Percentages based on initial investments
Selk = $208,000/$520,000 = 40%
Green = $312,000/$520,000 = 60%
Plan (b) Percentages based on time

Selk = 0.333/1.333 = 1/4 = 25%
Green = 1.000/1.333 = 3/4 = 75%
Plan (c) & Plan (d) Salary allowance

Green = 12 x $8,000 = $96,000
Plan (d) Interest allowances

Selk = 10% x $208,000 = $20,800
Green = 10% x $312,000 = $31,200

Sharing Plan Calculations Selk Green
(a) 40% x $72,000 loss ...................................................

$(28,800)
60% x $72,000 loss ................................................... $(43,200)
(b) 25% x $72,000 loss ...................................................

$(18,000)
75% x $72,000 loss ................................................... $(54,000)

40% x ($72,000 loss + $96,000 salary) .................... $(67,200)
60% x ($72,000 loss + $96,000 salary) .................... _______ (100,800)
Totals .........................................................................
$(67,200) $ (4,800)

Interest allowances ..................................................
$ 20,800 31,200
50% x ($72,000 loss + $96,000 salary +
(110,000)
$52,000 interest) .................................................... (110,000)
Totals .........................................................................
$(89,200) $ 17,200

Problem 12-2B (Concluded)

(a) 40% x $152,000 income ...........................................

$60,800
60% x $152,000 income ........................................... $ 91,200
(b) 25% x $152,000 income ...........................................

$38,000
75% x $152,000 income ........................................... $114,000

40% x ($152,000 income - $96,000 salary) ............... $22,400
60% x ($152,000 income - $96,000 salary) ................ ______ 33,600
Totals .........................................................................
$22,400 $129,600

Interest allowances .................................................. $20,800 31,200
50% x ($152,000 income-$96,000 salary -
$52,000 interest) .................................................... 2,000 2,000
Totals .........................................................................
$22,800 $129,200

(a) 40% x $376,000 income ...........................................

$150,400
60% x $376,000 income ........................................... $225,600
(b) 25% x $376,000 income ...........................................

$ 94,000
75% x $376,000 income ........................................... $282,000

40% x ($376,000 income - $96,000 salary) ................ $112,000
60% x ($376,000 income - $96,000 salary) ................ ________ 168,000
Totals .........................................................................
$112,000 $264,000

50% x ($376,000 income - $96,000 salary-
$52,000 interest) .................................................... 114,000 114,000
Totals .........................................................................
$134,800 $241,200

Part 1
Income (Loss)
Sharing Plan Calculations Cook Xi Bruce Total
(a) $270,000/3 ......................................................

$90,000 $ 90,000 $ 90,000 $270,000
(b) $270,000 x ($169,750/$485,000) ....................

$94,500
$270,000 x ($121,250/$485,000) .................... $ 67,500
$270,000 x ($194,000/$485,000) ....................
_______ _______ $108,000
$94,500 $ 67,500
Total allocated ............................................... $108,000 $270,000
(c) Net income ..................................................... $270,000

Salary allowances .........................................
$40,000 $ 29,000 $ 42,000 (111,000)
Balance of income......................................... 159,000
Interest allowances
12% x $169,750 ...........................................
20,370
12% x $121,250 ........................................... 14,550
12% x $194,000 ........................................... 23,280
Total interest .................................................. (58,200)
Balance of income......................................... 100,800
Balance allocated equally .............................
33,600 33,600 33,600 (100,800)
Balance of income.........................................
______ _______ _______ $ 0
Shares of partners.........................................
$93,970 $ 77,150 $ 98,880

Part 2
CXB PARTNERSHIP
Statement of Partners’ Equity
For Year Ended December 31
Cook Xi Bruce Total
Beginning capital balances .................
$ 0 $ 0 $ 0 $ 0
Plus
Investments by owners .......................
169,750 121,250 194,000 485,000
Net income
Salary allowances ................................
40,000 29,000 42,000
Interest allowances ..............................
20,370 14,550 23,280
Balance allocated equally ...................
(14,900) (14,900) (14,900)
Total net income ..................................
45,470 28,650 50,380 124,500
Total ......................................................
215,220 149,900 244,380 609,500
Less partner withdrawals ....................

(19,000) (26,000) (36,000) (81,000)
Ending capital balance ........................
$196,220 $123,900 $208,380 $528,500
Part 3
Dec. 31 Income Summary ..................................................... 124,500

Cook, Capital ...................................................... 45,470
Xi, Capital ........................................................... 28,650
Bruce, Capital .................................................... 50,380
Dec. 31 Cook, Capital ............................................................ 19,000

Xi, Capital ................................................................. 26,000
Bruce, Capital .......................................................... 36,000
Cook, Withdrawals ............................................ 19,000
Xi, Withdrawals .................................................. 26,000
Bruce, Withdrawals ........................................... 36,000

Part 1
a)
Apr. 30 Davis, Capital ........................................................... 303,000
Leer, Capital ....................................................... 303,000
To record admission of Leer.
b)
Gibson, Capital.................................................... 303,000
To record admission of Gibson.
c)
Cash .................................................................... 303,000
To record withdrawal of Davis with no bonus.
d)
Brown, Capital* ....................................................... 25,600
Nell, Capital**...................................................... 102,400
Cash .................................................................... 175,000
To record Davis’ withdrawal and the
bonus to old partners.
* ($303,000 - $175,000) x 1/5
**($303,000- $175,000) x 4/5
e)
Accum. Deprec.—Manufacturing Equipment........ 168,000
Brown, Capital* .................................................. 20,400
Nell, Capital**...................................................... 81,600
Manufacturing Equipment ................................ 269,000
Cash .................................................................... 100,000
To record withdrawal of Davis with
bonus to old partners.
* [$303,000 - ($269,000 - $168,000 + $100,000)] x 1/5
**[$303,000 - ($269,000 - $168,000 + $100,000)] x 4/5

Part 2
a)
Apr. 30 Cash .......................................................................... 150,000
McCann, Capital*................................................ 150,000
To record admission of McCann.
$303,000 + $74,000 + $223,000 = $600,000
($600,000 + $150,000) x 20% = $150,000
Thus, no bonus is received or paid.
b)
Apr. 30 Cash .......................................................................... 98,000
Davis, Capital ($41,600* x 5/10)................................. 20,800
Brown, Capital ($41,600* x 1/10) ............................... 4,160
Nell, Capital ($41,600* x 4/10).................................... 16,640
McCann, Capital ................................................. 139,600
To record McCann’s admission and bonus.
($600,000 + $98,000) x 20% = $139,600
$98,000 - $139,600 = $(41,600)
Thus, a bonus is paid to new partner.
c)
Apr. 30 Cash .......................................................................... 213,000
Davis, Capital ($50,400* x 5/10)............................ 25,200
Brown, Capital ($50,400* x 1/10) .......................... 5,040
Nell, Capital ($50,400* x 4/10)............................... 20,160
McCann, Capital .................................................. 162,600
To record admission of McCann and bonus
to old partners.
($600,000 + $213,000) x 20% = $162,600
$213,000 - $162,600 = $50,400
Thus, old partners receive a bonus.

Note: All entries in this problem are dated Jan. 18.
1.
(a) Cash ..........................................................................
605,400
Equipment ........................................................... 552,000
Gain on Sale of Equipment ................................ 53,400
(b) Gain on Sale of Equipment .....................................53,400

London, Capital ($53,400 x 3/6) ......................... 26,700
Ramirez, Capital ($53,400 x 2/6) ........................ 17,800
Toney, Capital ($53,400 x 1/6) ............................ 8,900

Cash ..................................................................... 241,500
(d) London, Capital ($98,000 + $26,700) ...................... 124,700

Ramirez, Capital ($220,500 + $17,800) ................... 238,300
Toney, Capital ($171,500 + $8,900) ......................... 180,400
Cash ..................................................................... 543,400
2.
(a) Cash ..........................................................................
474,000
Loss on Sale of Equipment .....................................78,000
Equipment ........................................................... 552,000
(b) London, Capital ($78,000 x 3/6) ..............................39,000

Ramirez, Capital ($78,000 x 2/6) .............................26,000
Toney, Capital ($78,000 x 1/6) .................................13,000
Loss on Sale of Equipment ................................ 78,000

Cash ..................................................................... 241,500
(d) London, Capital ($98,000 - $39,000) .......................59,000

Ramirez, Capital ($220,500 - $26,000) .................... 194,500
Toney, Capital ($171,500 - $13,000) ........................ 158,500
Cash ..................................................................... 412,000

3.
(a) Cash ..........................................................................
301,200
Loss on Sale of Equipment ..................................... 250,800
Equipment .......................................................... 552,000
(b) London, Capital ($250,800 x 3/6) ............................125,400
Ramirez, Capital ($250,800 x 2/6) ...........................83,600
Toney, Capital ($250,800 x 1/6) ...............................41,800
Loss on Sale of Equipment ............................... 250,800
Cash ..........................................................................27,400
London, Capital ($98,000 - $125,400) ............... 27,400
Cash .................................................................... 241,500
(d) Ramirez, Capital ($220,500 - $83,600) .................... 136,900

Toney, Capital ($171,500 - $41,800) ........................ 129,700
Cash .................................................................... 266,600
4.
(a) Cash ..........................................................................
271,200
Loss on Sale of Equipment ..................................... 280,800
Equipment .......................................................... 552,000
(b) London, Capital ($280,800 x 3/6) ............................140,400

Ramirez, Capital ($280,800 x 2/6) ...........................93,600
Toney, Capital ($280,800 x 1/6) ...............................46,800
Loss on Sale of Equipment ............................... 280,800
Ramirez, Capital ($42,400 x 2/3)* ............................28,267

Toney, Capital ($42,400 x 1/3)* ...............................14,133
London, Capital ($98,000 - $140,400) ............... 42,400
*rounded

Cash .................................................................... 241,500
(d) Ramirez, Capital*......................................................98,633

Toney, Capital**........................................................ 110,567
Cash .................................................................... 209,200
*$220,500 - $93,600 - $28,267
**$171,500 - $46,800 - $14,133

Serial Problem — SP 12
1. Adriana Lopez should consider several factors:

a. If Success Systems continues to earn profits, at a 1:1 ownership, she
will have to share profits equally with her new partner. On the other
hand, at a 4:1 ownership, she will only have to share one-fifth of the
profits with her partner. However, if the business experiences losses,
Adriana will be better off if the partner is admitted at the 1:1 level – as
Adriana would absorb less of the loss.
b. At the 1:1 ownership, her partner will have more of a say in how the
business is run, whereas at the 4:1 level, the partner will have less of
a voice in the business.
c. If the partner invests in the business equal to their partnership
interest, there will be more total equity in the business if the partner
invests at the 1:1 level.
d. It would likely be easier to attract a partner if there is a lower amount
of investment required by the new partner at the 4:1 level. On the
other hand, a partner may wish to be more of an equal partner and
might wish to invest at the 1:1 level.
2a.
Jan. 1 Cash .......................................................................... 90,148
New Partner, Capital ........................................... 90,148
To admit a new partner at a 1:1 ownership interest
2b.
Jan. 1 Cash .......................................................................... 22,537
To admit a new partner at a 4:1 ownership interest
($90,148 x 1/4 = $22,537).
3.
Jan. 1 Cash .......................................................................... 22,537
To admit a new partner at a 4:1 ownership interest.
4. Total capital before admission of partner .......................... $ 90,148

Partner investment ............................................................... 22,537
Total capital after admission of partner ............................. $112,685
New partner’s equity percentage ($22,537 / $112,685) ..... 20%

Reporting in Action — BTN 12-1
1. The history states that Richard Schulze and a business partner opened
the Sound of Music store in St. Paul, Minnesota. This company
eventually grew into Best Buy.
2. At least two differences would be immediately apparent between Best

Buy’s corporate income statement and a partnership income statement.
First, in a general partnership, income flows through to the partners to
be reported on their individual tax returns. Therefore, the income
statement for a partnership would not show a line item for income taxes
as Best Buy’s does in Appendix A. Second, a corporate income
statement shows earnings per share figures, whereas a partnership
income statement would not report earnings per share given that no
stock is outstanding in a partnership. Other, less obvious, differences
also exist.
3. Specifically, the balance sheet for a partnership would not have the
following accounts as the Best Buy’s balance sheet reports in
Appendix A:
• Accrued income taxes
• Preferred stock
• Common stock
• Additional paid-in capital
• Retained earnings
We would also expect a separate Capital account to be reported for

each partner in the equity section of the balance sheet.

Comparative Analysis — BTN 12-2
1. Best Buy started in Minnesota in 1966 as the Sound of Music. Circuit

City started in Virginia in 1949 as the Wards Company.
2. Best Buy started as a partnership. Circuit City started as a sole

proprietorship, but the owner, Samuel S. Wurtzel, took a partner,
Abraham L. Hecht, in 1949, the year the company was founded.
3. Circuit City (Wards) achieved about $1,000,000 in sales in 1959. Best

Buy (Sound of Music) achieved $1,000,000 in sales in 1970.
4. Best Buy (Sound of Music) was publicly traded over the counter in
1969. In 1985, Best Buy had an initial public offering on the NASDAQ.
Circuit City (Wards) offered stock to the public in 1961. In 1984, the
company changed its name to Circuit City and offered its stock on the
New York Stock Exchange.

Ethics Challenge — BTN 12-3
1. Income allocation per original agreement
Maben Orlando Clark Total

Salary allowance .............. $ 3,000 $ 3,000 $ 3,000 $ 9,000
Per patient charges ......... 4,100* 12,300** 24,600*** 41,000
Totals ................................ $ 7,100 $15,300 $27,600 $50,000
*(.10 x 41,000) **(.30 x 41,000) ***(.60 x 41,000)
2. Income allocation per Clark’s proposal
Maben Orlando Clark Total

Per patient charges ......... $ 5,000 $15,000 $30,000 $50,000
(.10 x 50,000) (.30 x 50,000) (.60 x 50,000)
3. The ethical concern here is that Clark has proposed a change to the
partnership agreement that appears to be only self-serving. It is true
that Clark is the group’s largest producer and, therefore, is entitled to
the largest income. However, Clark’s proposal does not recognize that a
good portion of Clark’s income is due to the patient referrals by the
other partners. If patients are not referred for surgery, then Clark’s
income will assuredly decline. The original agreement gives some
credit through the salary allowance to Maben and Orlando for the
referrals.
A potentially fair compromise would be to study the referral patterns of

Maben and Orlando. Through analysis, a dollar value can be assigned
to the average amount of production generated monthly for Clark
through the referrals from the other partners. Note that this controversy
is not likely to subside until facts are gathered to support the fairest
allocation of the partnership income.

Communicating in Practice — BTN 12-4
--- STUDY NOTES ---

ORGANIZATIONS WITH PARTNERSHIP CHARACTERISTICS
I. Limited Partnerships
II. Limited Liability Partnerships
III. S Corporations
IV. Limited Liability Companies
I. Limited Partnerships
• These organizations are identified in its name with the words "Limited
Partnership," or "Ltd.," or "L.P."
• A limited partnership has two classes of partners, general and limited. At
least one partner must be a general partner who assumes management
duties and unlimited liability for the debts of the partnership. The limited
partners have no personal liability beyond the amounts they invest in the
partnership.
• A limited partnership is managed by the general partner(s). Limited
partners have no active role except as specified in the partnership
agreement.
• A limited partnership agreement often specifies unique procedures for
allocating incomes and losses between general and limited partners.
• The same basic accounting procedures are used for both limited and
general partnerships.
II. Limited Liability Partnerships

• This is identified in its name with the words "Limited Liability Partnership"
or by "LLP."
• This type of partnership is designed to protect innocent partners from
malpractice or negligence claims resulting from the acts of another
partner. When a partner provides service resulting in a malpractice claim,
that partner has personal liability for the claim. The remaining partners
who were not responsible for the actions resulting in the claim are not
personally liable for it.
• Most states hold all partners personally liable for other partnership debts.
• Accounting for a limited liability partnership is the same as for a general
partnership.

Communicating in Practice (Concluded)
Continued
III. S Corporations
• Certain corporations with 75 or fewer stockholders can elect to be treated
like a partnership for income tax purposes. These corporations are called
Sub-Chapter S or simply "S" corporations. This distinguishes them from
other corporations, called Sub-Chapter C or simply "C" corporations.
• "S" corporations provide stockholders with the same limited liability
feature as "C" corporations. The advantage to an "S" corporation is it
doesn't pay income taxes. If stockholders work for an "S" corporation,
their salaries are treated as expenses of the corporation.
• The remaining income or loss of the corporation is allocated to
stockholders for inclusion on their personal tax returns. Except for "C"
corporations having to account for income tax expenses and liabilities,
the accounting procedures are the same for both "S" and "C"
corporations.
IV. Limited Liability Companies

• A new form of business organization is the limited liability company. The
names of these businesses usually include the words "Limited Liability
Company" or an abbreviation such as "LLC" or "LC."
• This form of business has certain features like a corporation and others
like a limited partnership. The owners, who are called members, are
protected with the same limited liability feature in corporations. While
limited partners cannot actively participate in the management of a limited
partnership, the members of a limited liability company can assume an
active management role.
• A limited liability company usually has a limited life.
• For income tax purposes, the IRS usually classifies a limited liability
company as a partnership.

Taking It to the Net — BTN 12-5
1. The account titles given in the equity section of America First Tax
Exempt Investors, L.P are:
• General Partner
• Beneficial Unit Certificate Holders
• Unallocated deficit of variable interest parties
2. There are 9,837,928 units with a value of $90,722,467 at December 31,

2006.
3. The largest asset held by America First is Buildings and Improvements

with a gross value (before accumulated depreciation) of $77,311,306.
Instructor note: Because of accumulated depreciation, some might
answer Net Real Estate Assets (including Land) of $56,209,929, which
would be fine.

Teamwork in Action — BTN 12-6
1.
Income (Loss)
Sharing Plan Calculations Baker Warner Rice Total
(a) $600,000/3 ........................................................

$200,000 $200,000 $200,000 $ 600,000
(b) $600,000 x ($200,000/$1,000,000) .......................

$120,000
$600,000 x ($300,000/$1,000,000) .......................$180,000
$600,000 x ($500,000/$1,000,000) .......................
_______ _______ $300,000
Total allocated .................................................
$120,000 $180,000 $300,000 $ 600,000
(c) Net income ....................................................... $ 600,000

Salary allowances............................................
$ 50,000 $ 60,000 $ 70,000 (180,000)
Balance of income ................................. 420,000
Equally($420,000/3) ..............................140,000 140,000 140,000 (420,000)
Balance of Income ................................. $ 0
Total Allocated .......................................
$190,000 $200,000 $210,000
(d) Net Income ............................................. $ 600,000

Interest allowances:
10% x $200,000 ...................................
$ 20,000
10% x $300,000 ................................... $ 30,000
10% x $500,000 ................................... $ 50,000
Total interest .......................................... (100,000)
Balance of income ................................. 500,000
Balance allocated equally ..................... 166,666 166,667 166,667 (500,000)
Balance of income .................................
_______ _______ _______ $ 0
Shares of partners .................................
$186,666 $196,667 $216,667
2. Team members share solutions.
3. Answers will vary by team. One additional income sharing basis would
be to share income based on time worked in the partnership.

Entrepreneurial Decision — BTN 12-7
1. Samanta, Kelvin, and their future partners would be wise to construct

an agreement that includes the following:
a) names (reputations) and contributions
b) rights and duties
c) income and loss sharing agreement
d) withdrawal agreement
e) dispute procedures
f) admission and withdrawal of new partners
g) rights and duties in the event a partner dies.
2. The partnership form of business organization will have several

advantages for Samanta, Kelvin, and their partners. Three of these
include: (a) The partnership form will allow active involvement by all
partners. (b) The partnership will be relatively easy to form. (c) The
partnership itself will not pay taxes.
3. Several disadvantages exist with the partnership form of organization.

Three of these include: (a) The greatest disadvantage is that each
partner has unlimited liability for the partnership’s debts. (b) The life of
a partnership is limited and a death or termination by either partner will
end the partnership. (c) Mutual agency exists for partnerships so an act
by one partner can commit or bind the other partner.

Global Decision — BTN 12-8
1. The company was founded in 1937 as a private corporation with the

name of Dixon Studios Limited with share capital of £100.
2. Dixons Group plc changed its name to DSG international plc in

September 2005 to better reflect its growing international status.
3. The companies that are a part of DSG international plc are:

• Currys
• Currys.digital
• Distribution
• DSG Ireland
• Electro World
• Kotsovolos
• DSG Insurance Services
• DSGi Sourcing
• El Giganten
• Gigantti
• Lefdal Lavpris
• UniEuro
• Markantalo
• ElkjØp
• PC World
• PC City
• DSGi Business
• TheTechGuys
• DSG Business Services
• Dixons.co.uk
• Pixmania.com

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a. The partnership will need to pay because it is a merchandising firm.

b. A public accounting firm is not in the merchandising business.

Quick Study 12-2 (15 minutes)

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If Hiram is allocated a $50,000 salary allowance and there remains $2,000 to

Quick Study 12-4 (10 minutes)

Quick Study 12-5 (10 minutes)

Choi, Capital .............................................................................. 20,000

Quick Study 12-6 (10 minutes)

Cash ........................................................................................... 80,000

Quick Study 12-7 (15 minutes)

Total partnership return on equity = Net Income/Average equity

Paulson partner return on equity = Partner net income/Average partner equity

Fleming partner return on equity = Partner net income/Average partner equity

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Exercise 12-1 (15 minutes)

Characteristic General Partnerships

2. Owners’ liability Unlimited

3. Legal status Not separate from partners

4. Tax status of income Taxed only once

5. Owners’ authority Mutual agency

6. Ease of formation Requires only an agreement

7. Transferability of ownership Difficult to transfer

8. Ability to raise large amounts of capital Low ability

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b. Recommended Organization: The two doctors should form a

c. Recommended Organization: Novato should consider setting up a

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*Supporting calculations Eckert Kelley Total

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Daria Farrah Total

Plan (1) $175,000 x 1/2 ...............................................

Plan (2) ($64,000/$122,000) x $175,000 .....................

Plan (3) Net income .................................................... $175,000

Balance allocated equally

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1. Net income.................................................... $ 98,800

2. Net income.................................................... $ (16,800)

Exercise 12-6 (10 minutes)

Sept. 30 Estella, Capital ..........................................................

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a. Loss from selling assets

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b. Loss and deficit allocation

Exercise 12-12 (20 minutes)

Hunt Sports Enterprises LP:

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Plan (b) Percentages based on time

Plan (c) & Plan (d) Salary allowance