Capital Account And Journal Entry Problems Homework Help
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1.Heyman and Mullins begin a partnership on January 1, 2010. Heyman invests $40,000 cash and inventory costing $15,000 but with a current appraised value of only $12,000. Mullins contributes a building with a $40,000 book value and a $48,000 fair value. The partnership also accepts responsibility for a $10,000 note payable owed in connection with this building. The partners agree to begin operations with equal capital balances. The articles of partnership also provide that at each year-end, profits and losses are allocated as follows
a. For managing the business, Heyman is credited with a bonus of 10 percent of partnership income after subtracting the bonus. No bonus is accrued if the partnership records a loss.
b. Both partners are entitled to interest equal to 10 percent of the average monthly capital balance for the year without regard for the income or drawings of that year.
c. Any remaining profit or loss is divided 60 percent to Heyman and 40 percent to Mullins.
d. Each partner is allowed to withdraw $800 per month in cash from the business.
On October 1, 2010, Heyman invested an additional $12,000 cash in the business. For 2010, the partnership reported income of $33,000.
Lewis, an employee, is allowed to join the partnership on January 1, 2011. The new partner invests $66,000 directly into the business for a one-third interest in the partnership property. The revised partnership agreement still allows for both the bonus to Heyman and the 10 percent interest, but all remaining profits and losses are now split 40 percent each to Heyman and Lewis with the remaining 20 percent to Mullins. Lewis is also entitled to $800 per month in drawings.
Mullins chooses to withdraw from the partnership a few years later. After negotiations, all parties agree that Mullins should be paid a $90,000 settlement. The capital balances on that date were as follows
a. Assuming that this partnership uses the bonus method exclusively, make all necessary journal entries. Entries for the monthly drawings of the partners are not required.
b. Assuming that this partnership uses the goodwill method exclusively, make all necessary journal entries. Again, entries for the monthly drawings are not required.
2. A partnership begins its first year of operations with the following capital balances
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 subsequent 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?
3.A partnership begins its first year with the following capital balances
The articles of partnership stipulate that profits and losses be assigned in the following manner:
• Each partner is allocated interest equal to 10 percent of the beginning capital balance.
• Baxter is allocated compensation of $20,000 per year.
• Any remaining profits and losses are allocated on a 3:3:4 basis, respectively.
• Each partner is allowed to withdraw up to $5,000 cash per year.
Assuming that the net income is $50,000 and that each partner withdraws the maximum amount allowed, what is the balance in Cartwright’s capital account at the end of that year?
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4.Steve Reese is a well-known interior designer in Fort Worth, Texas. He wants to start his own business and convinces Rob O’Donnell, a local merchant, to contribute the capital to form a partnership. On January 1, 2009, O’Donnell invests a building worth $52,000 and equipment valued at $16,000 as well as $12,000 in cash. Although Reese makes no tangible contribution to the partnership, he will operate the business and be an equal partner in the beginning capital balances. To entice O’Donnell to join this partnership, Reese draws up the following profit and loss agreement
• O’Donnell will be credited annually with interest equal to 20 percent of the beginning capital balance for the year.
• O’Donnell will also have added to his capital account 15 percent of partnership income each year (without regard for the preceding interest figure) or $4,000, whichever is larger. All remaining income is credited to Reese.
• Neither partner is allowed to withdraw funds from the partnership during 2009. Thereafter, each can draw $5,000 annually or 20 percent of the beginning capital balance for the year, whichever is larger.
The partnership reported a net loss of $10,000 during the first year of its operation. On January 1,
2010, Terri Dunn becomes a third partner in this business by contributing $15,000 cash to the partnership. Dunn receives a 20 percent share of the business’s capital. The profit and loss agreement is altered as follows:
• O’Donnell is still entitled to (1) interest on his beginning capital balance as well as (2) the share of partnership income just specified.
• Any remaining profit or loss will be split on a 6:4 basis between Reese and Dunn, respectively.
Partnership income for 2010 is reported as $44,000. Each partner withdraws the full amount that is allowed.
On January 1, 2011, Dunn becomes ill and sells her interest in the partnership (with the consent of the other two partners) to Judy Postner. Postner pays $46,000 directly to Dunn. Net income for 2011 is $61,000 with the partners again taking their full drawing allowance.
On January 1, 2012, Postner withdraws from the business for personal reasons. The articles of partnership state that any partner may leave the partnership at any time and is entitled to receive cash in an amount equal to the recorded capital balance at that time plus 10 percent.
a. Prepare journal entries to record the preceding transactions on the assumption that the bonus (or no revaluation) method is used. Drawings need not be recorded, although the balances should be included in the closing entries.
b. Prepare journal entries to record the previous transactions on the assumption that the goodwill (or revaluation) method is used. Drawings need not be recorded, although the balances should be included in the closing entries.
5.Go to the website www.sec.gov where forms filed with the SEC are available. Look for a section en- titled “Filings & Forms (EDGAR),” and click on “Search for Company Filings” within that section. On the next screen that appears, click on “Search Companies and Filings.” On the next screen, enter the following company name: Buckeye Partners. A list of SEC filings made by that company will ap- pear; scroll down to the first 10–K (annual report) filing from Buckeye Partners. Click on that 10–K. This path will provide the latest financial information available for Buckeye Partners. Scroll through the statement information until the actual financial statements, followed by the notes, appear.
Review this set of financial statements as well as the accompanying notes. List information included for this partnership that would typically not appear in financial statements produced for a corporation.
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