Week 6.xls _128K_ - Student Of Fortune

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Week 6.xls _128K_ - Student Of Fortune Powered By Docstoc
					Use the following information to answer question #s 1 - 5:


The JNT partnership shares profit and losses in the ratio of 60% to Joan (J), 30%
to Nancy (N) and 10% to Thelma (T). The partnerships net income for the year is
$150,000.




Under the partnership agreement how would net income be distributed to the three
partners?




                                          Joan = $50,000, Nancy = $50,000,
                                          Thelma = $50,000
                                          Joan = $15,000, Nancy = $45,000,
                                          Thelma = $90,000
                                          Joan = $90,000, Nancy = $45,000,
                                          Thelma = $15,000
                                          Answer is undeterminable based on
                                          information given.

 Question 2
                      If there was no provision for net income in the partnership agreement, how would the net
                      income be distributed to the three partners?




                                                                                    Joan = $50,000, Nancy =
                                                                                    $50,000, Thelma = $50,000

                                                                                    Based on average capital
                                                                                    balances.
                                                                                    Based on hours worked for
                                                                                    the partnership.
                                                                                    Based on market value of
                                                                                    assets contributed to the
                                                                                    partnership.

 Question 3
                      If the partnership agreement states that Thelma should get a salary of $5,000, how would
                      the net income be distributed?




                                                                                    Joan = $50,000, Nancy =
                                                                                    $50,000, Thelma = $50,000
                                                                          Joan = $87,000, Nancy =
                                                                          $43,500, Thelma = $14,500

                                                                          Joan = $48,333, Nancy =
                                                                          $48,3333 Thelma = $48,333

                                                                          Joan = $93,000, Nancy =
                                                                          $46,500, Thelma = $15,500



Question 4
             If the partnership agreement states that each partner should get a salary of $60,000 how
             would the net income be distributed?




                                                                          Joan = (60,000), Nancy =
                                                                          (60,000), Thelma = (60,000)

                                                                          Joan = 50,000 Nancy =
                                                                          50,000, Thelma = 50,000
                                                                          Joan = 198,000, Nancy =
                                                                          99,000, Thelma = 33,000
                                                                          Joan = (18,000), Nancy =
                                                                          (9,000), Thelma = (3000)

Question 5
             If the partnership agreement states that each partner should get a salary of $10,000
             annually and the partnership experiences a net loss of $60,000 (before salary) how would
             the net loss be distributed?




                                                                          Joan = (10,000), Nancy =
                                                                          (10,000), Thelma = (10,000)

                                                                          Joan = (54,000), Nancy =
                                                                          (27,000), Thelma = (9,000)
                                                                          Joan = (20,000), Nancy =
                                                                          (20,000), Thelma = (20,000)

                                                                          Joan = (30,000), Nancy =
                                                                          (30,000), Thelma = (30,000)



Question 6
             Based on the following information relating to the BIG partnership answer the question #s 6
             - 9:
             Bill 20% Income share ratio $ 70,000 Capital balance


             Inga 20%            90,000

             George 60% 160,000




             Betty joins the partnership which is renamed BIGB.


             1. Betty purchases an interest in the partnership by paying George $85,000 for half of his
             partnership interest. The partnership net assets are fairly valued; therefore no revaluation
             is done. What are the balances in the four partners' accounts after Betty is admitted?




             HINT: Betty pays the $85,000 to George, not the partnership. George owns 50% of the
             partnership ($160,000 of $320,000). Therefore, if Betty buys half of George's interest she
             should end up with 25% of the partnership.




                                                                            Bill = $70,000, Inga =
                                                                            $90,000, George = $80,000,
                                                                            Betty = $80,000.
                                                                            Bill = $70,000, Inga =
                                                                            $90,000, George = $160,000,
                                                                            Betty = $85,000.

                                                                            Bill = $70,000, Inga =
                                                                            $90,000, George = $80,000,
                                                                            Betty = $85,000.
                                                                            Bill = $70,000, Inga =
                                                                            $90,000, George = $160,000,
                                                                            Betty = $80,000.



Question 7
             Betty purchases an interest in the partnership by paying George $85,000 for half of his
             partnership interest. The partnership net assets are under valued; therefore goodwill is to
             be recorded. What is the amount of goodwill and the balances in the partners' capital
             accounts after Betty is admitted? HINT: Based on Betty's payment of $85,000 for 25% of
             the partnership, if 25% of the partnership is valued at $85,000 then we can assume the
             market value of the entire partnership is $340,000 (85,000 x 4). Any goodwill recorded
             should be allocated to the old partners only.




                                                                           Goodwill = $(85,000)

                                                                           Capital = Bill $70,000, Inga
                                                                           $90,000, George $80,000,
                                                                           Betty $80,000.

                                                                           Goodwill = $0

                                                                           Capital = Bill $70,000, Inga
                                                                           $90,000, George $80,000,
                                                                           Betty $80,000.

                                                                           Goodwill = $20,000

                                                                           Capital = Bill $74,000, Inga
                                                                           $94,000, George $86,000,
                                                                           Betty $86,000.

                                                                           Goodwill = $5,000

                                                                           Capital = Bill $70,000, Inga
                                                                           $90,000, George $80,000,
                                                                           Betty $85,000.



Question 8
             Betty purchases a 20% interest in the partnership by investing $100,000 in the partnership.
             Goodwill is not recorded. What are the balances in the partners' capital accounts after
             Betty is admitted into the partnership?




                                                                           Bill = $70,000, Inga =
                                                                           $90,000, George = $160,000,
                                                                           Betty = $80,000.

                                                                           Bill = $70,000, Inga =
                                                                           $90,000, George = $160,000,
                                                                           Betty = $84,000.

                                                                           Bill = $73,200, Inga =
                                                                           $93,200, George = $169,600,
                                                                           Betty = $84,000.

                                                                           Bill = $70,000, Inga =
                                                                           $90,000, George = $160,000,
                                                                           Betty = $100,000.



Question 9
             Betty purchases a 20% interest in the partnership by investing $100,000 in the partnership.
             Goodwill is recorded. What is the amount of goodwill and the balances in the partners'
             capital accounts after Betty is admitted?




                                                                           Bill = $86,000, Inga =
                                                                           $106,000, George =
                                                                           $208,000, Betty = $120,000.


                                                                           Goodwill = $100,000
                                                                           Bill = $90,000, Inga =
                                                                           $126,000, George =
                                                                           $220,000, Betty = $100,000.


                                                                           Goodwill = $100,000
                                                                           Bill = $70,000, Inga =
                                                                           $90,000, George = $160,000,
                                                                           Betty = $180,000.
                                                                                 Goodwill = $80,000
                                                                                 Bill = $86,000, Inga =
                                                                                 $106,000, George =
                                                                                 $208,000, Betty = $100,000.


                                                                                 Goodwill = $80,000
Question 10
               Bishop has a capital balance of $ 120,000 in a local partnership, and Cotton has a $ 90,000
               balance. These two partners share profits and losses by a ratio of 60 percent to Bishop and
               40 percent to Cotton. Lovett invests $ 60,000 in cash in the partnership for a 20 percent
               ownership. The goodwill method will be used. What is Cottons capital balance after this
               new investment?

                                                                                                     $99,600.00
                                                                                                    $102,000.00
                                                                                                    $112,000.00
                                                                                                    $126,000.00


 Question 11
               The capital balance for Messalina is $ 210,000 and for Romulus is $ 140,000. These two
               partners share profits and losses 60 percent (Messalina) and 40 percent (Romulus).
               Claudius invests $ 100,000 in cash in the partnership for a 20 percent ownership. The
               bonus method will be used. What are the capital balances for Messalina, Romulus, and
               Claudius after this investment is recorded?

                                                                                 $ 216,000, $ 144,000, $
                                                                                 90,000.
                                                                                 $ 218,000, $ 142,000, $
                                                                                 88,000.
                                                                                 $ 222,000, $ 148,000, $
                                                                                 80,000.
                                                                                 $ 240,000, $ 160,000, $
                                                                                 100,000.


 Question 12
               A partnership begins its first year of operations with the following capital balances:

               Winston Capital $110,000

               Durham Capital $ 80,000

               Salem Capital $110,000

               According to the articles of partnership, all profits will be assigned as follows:

                Winston will be awarded an annual salary of $ 20,000 with $ 10,000 assigned to Salem.
               The partners will be attributed interest equal to 10 percent of the capital balance as of the
               first day of the year.

               The remainder will be assigned on a 5: 2: 3 basis, respectively.

               Each partner is allowed to withdraw up to $ 10,000 per year.

              Assume that the net loss for the first year of operations is $ 20,000 and that net income for
              the sub-sequent year is $ 40,000.

              Assume also that each partner withdraws the maximum amount from the business each
              period. What is the balance in Winston’s capital account at the end of the second year?




                                                                                               $102,600.00
                                                                                               $104,400.00
                                                                                               $108,600.00
                                                                                               $109,200.00


Question 13
              A partnership has the following capital balances:

              Allen Capital $60,000

              Burns Capital $30,000

              Costello Capital $90,000

              Profits and losses are split as follows: Allen (20%), Burns (30%), and Costello (50%).
              Costello wants to leave the partnership and is paid $ 100,000 from the business based on
              provisions in the articles of partnership. If the partnership uses the bonus method, what is
              the balance of Burns’ capital account after Costello withdraws?
              Hint: The bonus must be allocated to the remaining partners based on their income
              sharing ratio. Therefore, the bonus is extrapolated - 20/60 becomes 2/8; 6/8%.

                                                                                                $24,000.00
                                                                                                $27,000.00
                                                                                                $33,000.00
                                                                                                $36,000.00


Question 14
              WJB Partnership has the following balances and admits Darrow as a partner.
              William (40% income share) Capital $ 220,000

              Jennings (40% income share) Capital $160,000

              Bryan (20% income share) Capital$110,00
              Darrow pays the 3 partners a total of $ 270,000 in cash for a 30 percent ownership interest.
              The money goes to the original partners. Goodwill is to be recorded. How much goodwill
              should be recognized, and what is Darrow’s beginning capital balance? Hint: If $270,000
              = 30% then we can assume that the market value for 100% of the partnership is $900,000.




                                                                            $ 410,000 and $ 270,000.
                                                                            $ 140,000 and $ 270,000.
                                                                            $ 140,000 and $ 189,000.
                                                                            $ 410,000 and $ 189,000.


Question 15
              WJB Partnership has the following balances and admits Darrow as a partner.
              William (40% income share) Capital $ 220,000

              Jennings (40% income share) Capital $160,000

              Bryan (20% income share) Capital$110,00
              Darrow invests $ 250,000 in cash into the partnership for a 30 percent ownership interest.
              The money goes to the business. No goodwill or other revaluation is to be recorded. After
              the transaction, what is Jennings’ capital balance?

                                                                                             $160,000.00
                                                                                             $168,000.00
                                                                                             $170,200.00
                                                                                             $171,200.00
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                                            Problem 14-17
The Distance Plus partnership has the following capital balances at the beginning of the
current year:

Tiger (50% of profits and losses)                $85,000
Phil (30%)                                         60,000
Ernie (20%)                                        55,000

Each of the following questions ashould be viewed independently.
a. If Sergio invest $100,000 in cash in the business for a 25 percent interest, what journal
entry is recorded? Assume that the bonus method is used.
b. If Sergio invests $60,000 in cash in the business for a 25 percent interest, what journal
entry is recorded? Assume that the bonus method is used.
c. If Sergio invests $72,000 in cash in the business for a 25 percent interest, what journal
entry is recorded? Assume that the goodwill method is used.

                                              Problem 14-21
Purkerson, Smith, and Traynor have operated a bookstore for a number of years as a partnership.
At the beginning of 2011, capital balances were as follows:
            Purkerson                 $60,000
            Smith                       40,000
            Traynor                     20,000
Due to cash shortage, Purkerson invests and additional $8,000 in the business on April 1, 2011.
Each partner is allowed to withdraw $1,000 cash each month. The parners have used the same
method of allocating profits and losses since the business's inception:
Each partner is given the following compensation allowance for work done in the busiiness:
Purkerson, $18,000; Smith, $25,000 and Traynor, $8,000.
Each partner is credited with interest equal to 10 percent of the average monthly capital balance
for the year without regard for normal drawings.
Any remaining profit or loss is allocated 4:2:4 to Purkerson, Smith, and Traynor, respectively. Th
net income for 2011 is $23,600. Each partner withdraws the allotted amount each moth.
 What are the ending capital balances for 2011?
                    This is a template for the Statement of Partners’ Capital
                                      from Problem 14-21:




                                STATEMENT OF PARTNERS' CAPITAL
                                                 Purkerson              Smith           Traynor         Totals
   Beginning balances .............
   Additional contribution ........
   Income (above) .....................
   Drawings ($1,000 per month)
   Ending capital balances .......                 $64,600          $49,000            $ 2,000       $115,600
ital




nor       Totals




00     $115,600

				
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