# Week 6.xls _128K_ - Student Of Fortune

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```					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
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 .............
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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 views: 813 posted: 8/4/2011 language: English pages: 18