Financial Accounting Questions And Answers Homework Help
- August 24, 2017
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1.A partnership of attorneys in the St. Louis, Missouri, area has the following balance sheet ac- counts as of January 1, 2013
Assets . . . . . . . . . . . . . . . . . $320,000 | Liabilities . . . . . . . . . . . . . . . . . | $120,000 |
Athos, capital . . . . . . . . . . . . . | 80,000 | |
Porthos, capital . . . . . . . . . . . . | 70,000 | |
Aramis, capital. . . . . . . . . . . . . | 50,000 |
According to the articles of partnership, Athos is to receive an allocation of 50 percent of all partnership profits and losses while Porthos receives 30 percent and Aramis, 20 percent. The book value of each asset and liability should be considered an accurate representation of fair value.
For each of the following independent situations, prepare the journal entry or entries to be recorded by the partnership. (Round to nearest dollar.)
a. Porthos, with permission of the other partners, decides to sell half of his partnership inter- est to D’Artagnan for $50,000 in cash. No asset revaluation or goodwill is to be recorded by the partnership.
b . All three of the present partners agree to sell 10 percent of each partnership interest to D’Artagnan for a total cash payment of $25,000. Each partner receives a negotiated portion of this amount. Goodwill is recorded as a result of the transaction.
c . D’Artagnan is allowed to become a partner with a 10 percent ownership interest by con- tributing $30,000 in cash directly into the business. The bonus method is used to record this admission.
d. Use the same facts as in requirement ( c ) except that the entrance into the partnership is recorded by the goodwill method.
e . D’Artagnan is allowed to become a partner with a 10 percent ownership interest by con- tributing $12,222 in cash directly to the business. The goodwill method is used to record this transaction.
f . Aramis decides to retire and leave the partnership. An independent appraisal of the busi- ness and its assets indicates a current fair value of $280,000. Goodwill is to be recorded. Aramis will then be given the exact amount of cash that will close out his capital account.
2.The partnership of Matteson, Richton, and O’Toole has existed for a number of years. At the present time the partners have the following capital balances and profit and loss sharing percentages
Partner | Capital Balance | Profit and Loss Percentage |
Matteson | $ 90,000 | 30 |
Richton | 150,000 | 50 |
O’Toole | 100,000 | 20 |
O’Toole elects to withdraw from the partnership, leaving Matteson and Richton to operate the business. Following the original partnership agreement, when a partner withdraws, the partnership and all of its individual assets are to be reassessed to current fair values by an independent appraiser. The withdrawing partner will receive cash or other assets equal to that partner’s current capital balance after including an appropriate share of any adjustment indicated by the appraisal. Gains and losses indicated by the appraisal are allocated using the regular profit and loss percentages.
An independent appraiser is hired and estimates that the partnership as a whole is worth $600,000. Regarding the individual assets, the appraiser finds a building with a book value of $180,000 has a fair value of $220,000. The book values for all other identifiable assets and liabilities are the same as their appraised fair values. Accordingly, the partnership agrees to pay O’Toole $120,000 upon withdrawal. Matteson and Richton, however, do not wish to record any goodwill in connection with the change in ownership.
Prepare the journal entry to record O’Toole’s withdrawal from the partnership.
3.Following is the current balance sheet for a local partnership of doctors
Cash and current | Liabilities | $ 40,000 | |
assets | $ 30,000 | A, capital | 20,000 |
Land | 180,000 | B, capital | 40,000 |
Building and | C, capital | 90,000 | |
equipment (net) | 100,000 | D, capital | 120,000 |
Totals | $310,000 | Totals | $310,000 |
The following questions represent independent situations
a. E is going to invest enough money in this partnership to receive a 25 percent interest. No goodwill or bonus is to be recorded. How much should E invest?
b . E contributes $36,000 in cash to the business to receive a 10 percent interest in the partner- ship. Goodwill is to be recorded. Profits and losses have previously been split according to the following percentages: A, 30 percent; B, 10 percent; C, 40 percent; and D, 20 percent. After E makes this investment, what are the individual capital balances?
c . E contributes $42,000 in cash to the business to receive a 20 percent interest in the part- nership. Goodwill is to be recorded. The four original partners share all profits and losses equally. After E makes this investment, what are the individual capital balances?
d. E contributes $55,000 in cash to the business to receive a 20 percent interest in the part- nership. No goodwill or other asset revaluation is to be recorded. Profits and losses have previously been split according to the following percentages: A, 10 percent; B, 30 percent; C, 20 percent; and D, 40 percent. After E makes this investment, what are the individual capital balances?
e . C retires from the partnership and, as per the original partnership agreement, is to receive cash equal to 125 percent of her final capital balance. No goodwill or other asset revalua- tion is to be recognized. All partners share profits and losses equally. After the withdrawal, what are the individual capital balances of the remaining partners?
4.On January 17 of the current year, the Bamber Partnership was formed by Bob Miller, Carl Penn, and Don Allen. Each partner has an equal interest in the capital and profits of the partnership. The Bamber partnership will report on the basis of a calendar year. The following contributions were made when the partnership was formed.
Partner Property: Basis to Partner FMV
Bob……Cash $15,000 $15,000
Carl……Inventory $9,000 $15,000
Don……Capital Asset $ 35,000 $15,000
Both the inventory and capital asset are inventory to the Bamber partnership. On May 22 the partnership sells the inventory for $27,000. On July 19 the partnership sells the capital asset which Don contributed for $9,000. The partnership agreement is silent regarding the property contributed by the partners. Without regard to the sale of the contributed properties, the Bamber partnership reports $60,000 of ordinary income for its current tax year. As a result of partnership transactions, what does each partner report on his individual tax return for the current year?
5.Car and Lam establish an equal partnership in both equity and profits to operate a used-furniture business under the name of C&L Furniture. Car contributes furniture inventory that cost $120,000 and has fair value of $160,000. Lam contributes $60,000 cash and delivery equipment that cost $80,000 and has a fair value of $60,000.
REQUIRED: Assume that the initial noncash contributions of the partners are recorded at fair market value. Compute the ending balance of each capital account under the bonus and goodwill approaches.
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