Accounting For Partnerships and Limited Liability Companies Study Guide Solutions Fill-in-the-Blank Equations

Chapter 12
Accounting for Partnerships and Limited Liability Companies

Study Guide Solutions
Fill-in-the-Blank Equations
1. Net income for the year
2. Revenue per employee
Exercises
1. Wyatt Parks would like to form a business but is unsure which legal form would be best
for him. He would like to have limited liability against creditor claims if the business
does not succeed. If the company is successful, Parks does not want the life of the
business to be limited to his lifetime. What type of legal form would best fit his needs?
Limited Liability Company (LLC)
2. Michael Bryan is looking to develop a new company. Bryan believes that the company
will be unsuccessful at first, so he prefers the net income or loss to pass through to his
personal tax return for taxation. He does not have any business associates, so he will be
forming the business alone. What type of legal form would best fit his needs?
Proprietorship
3. Determine if each description is related to a proprietorship, partnership, or limited
liability company.
a. Partnership
b. Proprietorship
c. Limited liability company
Strategy: Knowing the types of owners a business has can be helpful to remember the
characteristics of that type. For example, because a proprietorship has one owner, the
life is limited to its owner, and the same for a partnership and its owners. Also, with only
one owner, a proprietorship does not need an agreement among owners, as under a
partnership and an LLC. Additionally, because the owner(s) of a proprietorship and
partnership are solely responsible for the business, the funds are limited to what the
owner(s) can contribute, but they also must absorb all losses (and have unlimited
liability).
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2 Chapter 12
4. Jonathan Meyers contributes the following items to his newly formed partnership: Cash,
$475; Equipment, $1,300; Accounts Payable, $200; and Inventory, $650. Prepare the
journal entry to record his contribution on August 1, 2015.
Aug. 1 Cash 475

Inventory 650
Equipment 1,300
Accounts Payable 200
Jonathan Meyers, Capital 2,225
5. Jack L. and Matthew C. would like to combine businesses to form a partnership. Jack
contributes the following: Building, $7,950; Notes Payable on the building, $2,150; and
Inventory, $790. Matthew contributes $1,200 of Accounts Receivable, which has an
Allowance for Doubtful Accounts of $250. Matthew also contributes $970 of cash.
Prepare the journal entry to record the contributions, which occur on August 21, 2015.
Aug. 21 Cash 970

Accounts Receivable 1,200
Inventory 790
Building 7,950
Allowance for Doubtful Accounts 250
Notes Payable 2,150
Jack L., Capital 6,590
Matthew C., capital 1,920
or:
Aug. 21 Cash 970

Accounts Receivable 1,200
Matthew C., Capital 1,920
21 Inventory 790
Building 7,950
Notes Payable 2,150
Jack L., Capital 6,590
Accounting for Partnerships and Limited Liability Companies 3
6. Owen Dillard and Ryan Keller are looking to form a new partnership. Dillard contributes
the following to the partnership: Equipment, $875; Building, $6,790; Notes Payable,
$2,100; and Cash, $260. Keller contributes the following: Accounts Receivable, $900
with an allowance for doubtful accounts of $160; Inventory, $675; Cash, $125; and
Accounts Payable, $250. Prepare the journal entry to record the partners’ contributions
on September 1, 2015.
Sept. 1 Cash 385
Accounts Receivable 900
Inventory 675
Equipment 875
Building 6,790
Notes Payable 2,100
Owen Dillard, Capital 5,825
Ryan Keller, Capital 1,290
or:
Sept. 1 Cash 260
Equipment 875
Building 6,790
Notes Payable 2,100
Owen Dillard, Capital 5,825
1 Cash 125
Accounts Receivable 900
Inventory 675
Ryan Keller, Capital 1,290
Strategy: The net amount of assets and liabilities (net assets) contributed to a
partnership upon formation is equal to the partner’s initial interest, since Assets =
Liabilities + Owners’ Equity. The amount contributed (net assets) is equal to the interest
received (beginning balance of capital account). Assets should be debited to increase the
balance, while liabilities should be credited to increase the balance. The partner’s capital
accounts will be increased by the same amount of the net assets contributed with a
credit.
4 Chapter 12
7. Kelly R. and Rose C. formed a partnership in the previous year. In the agreement, each
partner promises to perform services for the partnership. Kelly R. receives a $3,500
monthly salary while Rose C. receives a $4,000 monthly salary. For the 2015 fiscal year
ending on September 30, 2015, the partnership earned a net income of $247,000. If the
partnership income is divided among partners based on services provided, determine
the amount allocated to each partner. Any remaining income after the annual salary is
divided equally. Also prepare the journal entry to record the division of net income.
Kelly R. Rose C. Total
Annual salary allowance $42,000 $48,000 $90,000
($3,500 × 12 mo.) ($4,000 × 12 mo.)
Remaining income 78,500 78,500 157,000
Net income $120,500 $126,500 $247,000
Sept. 30 Income Summary 247,000

Kelly R., Capital 120,500
Rose C., Capital 126,500
8. Ashley F. and Charles K.’s partnership earns $300,000 of net income for the 2015 fiscal
year ending March 31, 2015. The partnership agreement states the net income should
be allocated to partners according to the services provided to the partnership, with any
remaining net income also allocated according to the contributions of services provided.
Ashley F. receives a $5,200 monthly allowance, while Charles K. receives a $5,750
monthly allowance. Determine the amount allocated to each partner and prepare the
journal entry to record the division of net income. Round percentages and answers to
two decimal places.
Ashley F. Charles K. Total
($5,200 × 12 mo.) ($5,750 × 12 mo.)
Percentage Services Provided 47.49% 52.51% 100%
($62,400/$131,400) ($69,000/$131,400)
Remaining income 80,068.14 88,531.86 168,600
(47% × $168,600) (53% × $168,600)
Net income $142,468.14 $157,531.86 $300,000
Mar. 31 Income Summary 300,000.00

Ashley F., Capital 142,468.14
Charles K., Capital 157,531.86
9. JJ&T Partnership has three partners, James Small, Josh Platt, and Turner Lyle, who
allocate net income according to the services provided and any remainder equally. The
partnership agreement states that James and Turner will provide services for $2,500 a
month while Josh will provide services for $3,750. For the fiscal year ending December
31, 2015, the partnership earned $192,600. Determine the amount allocated to each
partner and prepare the journal entry to record the division of net income.
James S. Josh P. Turner L. Total
Annual salary allowance $30,000 $45,000 $30,000 $105,000
($2,500 × 12 mo.) ($3,750 × 12 mo.) ($2,500 × 12 mo.)
Remaining income 29,200 29,200 29,200 87,600
Net income $59,200 $74,200 $59,200 $192,600
Dec. 31 Income Summary 192,600

James Small, Capital 59,200
Josh Platt, Capital 74,200
Turner Lyle, Capital 59,200
Strategy: First, determine the amount each partner will receive annual. Next, subtract
the total annual salaries from the net income to find the amount of any residual income.
The residual income should be allocated to the partners based on what is promised in
the partnership agreement. The journal entry to record the increase in the partner’s
capital account would include a debit to Income Summary and a credit to each partner’s
capital account for their share of net income.
6 Chapter 12
10. Assume that K&R Associates divides income based upon salary allowances and 15%
interest on the capital balances of each partner (Kelly R. and Rose C.), with any
remaining net income allocated equally. For the March 31, 2016, fiscal year, determine
the amount allocated to each partner using the information below if the partnership
earned $175,000.
Monthly Salary Allowance Capital Balance on April 1, 2015
Kelly R. $2,200 $135,400
Rose C. 2,750 110,800

($2,200 × 12 mo.) ($2,750 × 12 mo.)
Interest allowance 20,310 16,620 36,930
($135,400 × 15%) ($110,800 × 15%)
Total $46,710 $49,620 $ 96,330
Net Income $86,045 $88,955 $175,000
11. Jack L. and Matthew C.’s partnership agreements states that net income will be
allocated based upon salary allowances and interest on the partners’ capital balances at
a 20% rate. Any remainder net income will be allocated based upon the weighting of the
capital balances. For the 2015 fiscal year, determine the amount of the partnership’s
$180,000 income allocated to each partner using the information below. Round the
weights of capital balances to the nearest whole percentage.
Monthly Salary Allowance Capital Balance on January 1, 2015

Jack L. $4,100 $175,000
Matthew C. 2,200 147,500
Jack L. Matthew C. Total

Annual salary allowance $49,200 $26,400 $ 75,600
($4,100 ×12 mo.) ($2,200 × 12 mo.)
($175,000 × 20%) ($147,500 × 20%)
Total $84,200 $55,900 $140,100
Percentage capital balance 54% 46% 100%
($175,000/$322,500) ($147,500/$322,500)
($39,900 × 54%) ($39,900 × 46%)
Net Income $ 105,746 $ 74,254 $180,000
12. Wyatt Parks and Michael Burns form a partnership, Parks & Burns, which earns net
income of $110,000 for the 2015 fiscal year. The partners agree to allocate net income
based upon salary allowances, interest on their capital balances at a 10% rate, and any
remainder equally. Use the information below to determine the amount of the net
income allocated to each partner.
Monthly Salary Allowance Capital Balance on January 1, 2015

Wyatt Parks $1,750 $100,000
Michael Burns 1,950 97,500
Wyatt Parks Michael Burns Total

($1,750 × 12 mo.) ($1,950 × 12 mo.)
($100,000 × 10%) ($97,500 × 10%)
Total $31,000 $33,150 $64,150
Net income $53,925 $56,075 $110,000
Strategy: First, determine the amount of each partner’s annual allowance by adding the
annual salary allowance and the interest allowance. The interest allowance is found by
multiplying the partner’s capital balance at the beginning of the year by the interest rate
stated in the agreement. The interest allowance is similar to interest earned in a savings
account at a bank. The partners contributed assets and expect to receive a desired
amount of income (the stated interest rate) from the assets. Any remaining income is
allocated to the partners according to the promised amounts in the partnership
agreement.
13. Assume the same information as in Exercise 10, except that the partnership’s net
income is $92,000 rather than $175,000. Determine the amount of income allocated to
each partner.

Total $46,710 $49,620 $96,330
Deduct excess of allowances over income 2,165 2,165 4,330
Net income $44,545 $47,455 $92,000
8 Chapter 12
14. Assume the same information as in Exercise 12, except that the partnership’s net
income is $50,000, rather than $110,000. Determine the amount of income that will be
allocated to each partner.
Wyatt Parks Michael Burns Total

Total $31,000 $33,150 $64,150
Deduct excess of allowances over income 7,075 7,075 14,150
Net income $23,925 $26,075 $50,000
15. Assume the same information as in Exercise 9, except that the partnership’s net income
is $99,000, rather than $192,600. Determine the amount of income that will be
allocated to each partner.
James S. Josh P. Turner L. Total

Annual salary allowance $30,000 $45,000 $30,000 $105,000
Deduct excess of allowances over income 2,000 2,000 2,000 6,000
Net income $28,000 $43,000 $28,000 $99,000
Strategy: When the net income of the partnership is less than the net income needed to
cover all of the partners’ annual salary allowances, the partnerships will have to receive
less than agreed upon. First, subtract net income from the total of the partners’ salary
allowances to find the difference that will need to be allocated to the partners. Divide
the difference equally among the partners, unless stated otherwise in the partnership
agreement. The amount of the difference allocated to each partner should be subtracted
from his promised annual salary to determine the amount of net income he will receive.
16. On October 1, 2015, Ryan T. becomes a partner in an existing partnership with Marie C.
and Jonathan L. Ryan purchases ⅓ of each existing partner’s interest. Prior to the
transaction, Marie’s capital account had a balance of $72,000 while Jonathan’s had a
balance of $66,000. Prepare the journal entry to record the transaction and determine
the account balances of each partner’s capital account afterwards.
Oct. 1 Marie C., Capital 24,000

Jonathan L., Capital 22,000
Ryan T., Capital 46,000
Marie C., Capital Jonathan L., Capital Ryan T., Capital

72,000 66,000 46,000
24,000 22,000
48,000 44,000 46,000
17. On September 15, 2015, Alex M. purchases interest in a partnership from Taylor P. and
Thomas K. Alex purchases ⅓ of Taylor’s $33,000 partnership interest and ⅕ of Thomas’s
$100,000 partnership interest. Prepare the journal entry to record the transaction. Also
determine each partner’s interest afterwards, rounding to the nearest whole
percentage.
Sept. 15 Taylor P., Capital 11,000

Thomas K., Capital 20,000
Alex M., Capital 31,000
Thomas K., Capital Taylor P., Capital Alex M., Capital

100,000 33,000 31,000
20,000 11,000
80,000 22,000 31,000
Thomas K.: 60% ($80,000/$133,000)

Taylor P.: 17% ($22,000/$133,000)
Alex M.: 23% ($31,000/$133,000)
10 Chapter 12
18. Laura B. becomes a partner in the J&J Partnership on November 1, 2015, by purchasing
an interest from the existing partners. Laura purchases ½ of James G.’s $50,000 interest
and ¼ of Josh T.’s $90,000 interest. Prepare the journal entry to record the transaction.
Also determine each partner’s capital account balance after the admittance of the new
partner.
Nov. 1 James G., Capital 25,000

Josh T., Capital 22,500
Laura B., Capital 47,500
James G., Capital Josh T., Capital Laura B., Capital

50,000 90,000 47,500
25,000 22,500
25,000 67,500 47,500
Strategy: Buying an interest in a partnership from an existing partner involves a

transaction between the partners. The partnership only needs to show the decrease in
the existing partner’s capital account (for the amount that was purchased from that
partner) and show an increase to the new partner’s capital account (for the total
amount that was purchased).
19. On October 1, 2015, Ryan T. becomes a partner in an existing partnership by
contributing equipment that has a value of $54,000. Prepare the journal entry to record
the admittance of the new partner. What effect does the transaction have on the
partnership’s net assets and owners’ equity?
Oct. 1 Equipment 54,000

Ryan T., Capital 54,000
Owners’ equity and the partnership’s net assets will increase by $54,000.
20. In exchange for interest in an existing partnership, Cody L. contributes a building worth
$75,000 to the partnership. Cody also contributes the $16,000 note payable for the
building to the partnership. Prepare the journal entry to record the Cody L.’s admittance
on January 3, 2015. Also determine the effect of the transaction on the company’s
balance sheet.
Jan. 3 Building 75,000

Notes Payable 16,000
Cody L., Capital 59,000
Assets will increase by $75,000, liabilities will increase by $16,000, and owners’ equity
will increase by $59,000. Net assets will increase by $59,000.
21. Regan T. becomes a partner in an existing partnership by contributing cash of $10,000

and inventory worth $12,000 to the partnership on March 5, 2015. Prepare the journal
entry to record the transaction and determine the effect on the partnership’s net assets
and owners’ equity.
Mar. 5 Cash 10,000

Inventory 12,000
Regan T., Capital 22,000
Net assets and owners’ equity will both increase by $22,000.

Strategy: The journal entry to admit a new partner in an existing partnership when
contributing assets and liabilities will be the same as in partnership formation because
the partnership will be receiving the assets and liabilities. The partnership needs to
increase the balances for the items contributed and increase the new partner’s capital
account by the amount of the net assets contributed.
22. Before admitting a new partner into the partnership on June 15, 2015, the account
balance of merchandise inventory shows a balance of $19,200. The cost to replace the
merchandise inventory would be $21,600. Record the revaluation of the asset and effect
on the two existing partners, Jill A. and Sarah M., who share net income equally.
June 15 Merchandise Inventory 2,400

Jill A., Capital 1,200
Sarah M., Capital 1,200
12 Chapter 12
23. A new partner will be admitted to the L&P Partnership on May 5, 2015. On this date, a
long-term investment has an account balance of $41,750, but is currently worth
$52,250. The partners, Lucy H. and Peter T., share net income using ratio of 3:2. Prepare
the journal entry to record the asset revaluation prior to the admittance of the new
partner.
May 5 Long-term Investment 10,500

Lucy H., Capital 6,300
Peter T., Capital 4,200
24. Prior to admitting a new partner into Terry & Teri Associates, the company has
merchandise inventory with an account balance of $1,500 and equipment with an
account balance of $4,200. The current cost to replace the inventory would be $1,150,
while the equipment has a current value of $4,800. The partners, Adam Terry and Teri
Smith, share net income equally. Prepare the journal entry to record the asset
revaluations on March 4, 2015.
Mar. 4 Equipment 600

Inventory 350
Adam Terry, Capital 125
Teri Smith, Capital 125
Strategy: Assets’ value should be increased or decreased to their current values before
admitting a new partner, so the new partner will not receive any of this gain or loss later
if the asset is sold. By adjusting the values, the new partners’ income will only reflect the
activity after admittance into the partnership. When net assets increase or decrease, the
existing partners’ capital accounts will increase or decrease so that the assets, liabilities,
and owners’ equity will be in balance. Each partner’s capital account will increase or
decrease according to his percentage as stated in the partnership agreement.
25. Taylor Robertson and Robert Samson would like to admit Mary Taylors as a new partner
to their existing partnership. Mary will receive a ⅓ interest in the partnership and will
share equally with the existing partners the income and loss of the partnership. Taylor
Robertson currently has a capital account balance of $28,000, while Robert Samson has
a capital account balance of $25,000. Mary Taylors plans to pay $22,000 in cash for the
interest. Calculate the bonus paid and prepare the journal entry to record the
admittance of the new partner, which occurs on July 10, 2015.
Taylor Robertson, capital $28,000

Robert Samson, capital 25,000
Mary Taylor's contribution 22,000
Total owners' equity after admission $75,000
Taylor's equity interest after admission ⅓
Mary Taylor, capital $25,000
Mary Taylor, capital $25,000

Mary Taylor's contribution 22,000
Bonus paid to Mary Taylor $ 3,000
July 10 Cash 22,000

Taylor Robertson, Capital 1,500
Robert Samson, Capital 1,500
Mary Taylor, Capital 25,000
14 Chapter 12
26. Prior to admitting a new partner on March 15, 2015, Bell and Smith have capital account
balances of $54,000 and $60,000, respectively. The new partner, Hughes plans to
contribute equipment worth $42,000 for a ¼ partnership interest. He will share
partnership income and losses equally with the existing partners. Calculate the bonus
paid and prepare the journal entry to record the admittance of the new partner.
Bell, capital $ 54,000

Smith, capital 60,000
Hughes' contribution 42,000
Hughes' equity interest after admission ¼
Hughes, capital $ 39,000
Hughes' contribution $ 42,000

Hughes, capital 39,000
Bonus paid to Bell & Smith $ 3,000
March 15 Equipment 42,000

Bell, Capital 1,500
Smith, Capital 1,500
Hughes, Capital 39,000
27. Nix and Goodman share partnership income and losses according to a 3:1 ratio. Prior to
admitting a new partner, Nix’s capital account has a balance of $61,500, while
Goodman’s capital account has a balance of $89,400. The new partner, Lee, agrees to
pay $50,000 in cash for a 20% partnership interest. Determine the amount of the
partner bonus and which partner(s) will receive the bonus. Prepare the journal entry to
record the admittance of the new partner on August 25, 2015.
Nix, capital $ 61,500

Goodman, capital 89,400
Lee's contribution 50,000
Lee's equity interest after admission 20%
Lee, capital $ 40,180
Lee's contribution $ 50,000

Lee, capital 40,180
Bonus paid to Nix & Goodman $ 9,820
Aug. 25 Cash 50,000

Nix, Capital 7,365
Goodman, Capital 2,455
Lee, Capital 40,180
Nix: (3/4) × $9,820

Goodman: (1/4) × $9,820
Strategy: First, add the new partner’s contribution to the amount of the existing
partners’ capital account balances to find the new total owners’ equity. The contribution
is added to the account balances because the total owners’ equity is equal to the net
assets of the partnership. Next, determine the amount of the owners’ equity attributable
to the new partner (his capital account balance) by multiplying the total owners’ equity
by the new partner’s ownership interest. If the new partner’s contribution is greater than
his capital account balance (his interest received is less than the net assets given), the
new partner paid a bonus to the existing partners. If the new partner’s contribution is
less than his account balance (his interest received is greater than the net assets given),
the existing partners paid a bonus to him.
16 Chapter 12
28. Terry is retiring from being a partner in the Terry & Teri Associates partnership. Terry’s
capital account balance before the retirement equals $51,500. The other existing
partners, Smith and Rowling, agree to each buy half of Terry’s capital account and
continue the business. Prepare the journal entry to record Terry’s retirement on
December 31, 2015.
Dec. 31 Terry, Capital 51,500

Smith, Capital 25,750
Rowling, Capital 25,750
29. Instead of the existing partners purchasing Terry’s partnership interest in Exercise 28,
the partnership pays for his partnership interest using $32,500 in cash and $19,000 of
equipment, which has a replacement cost equal to its current account balance on the
partnership’s balance sheet. Prepare the journal entry to record Terry’s retirement on
December 31, 2015.
Dec. 31 Terry, Capital 51,500

Cash 32,500
Equipment 19,000
30. Assume that the partner from Exercise 28 dies on December 16, 2015, rather than
retiring from the partnership. The partnership has a calendar year-end and increases
assets by $4,200 upon revaluation. The partnership has net income of $54,000 from the
beginning of the fiscal year to December 16, 2015. The partnership earns an additional
$8,600 from December 17, 2015, to December 31, 2015. If the partnership allocates net
income and losses among Terry and the other partner according to a 5:1 ratio, how
much will the partnership owe to Terry’s estate?
Terry, Capital
51,500 Beginning capital
45,000 Share net income ($54,000 × 5/6)
3,500 Share revaluation ($4,200 × 5/6)
100,000 Ending capital
The payable to Terry’s estate will have a balance of $100,000. After making the
adjustments above to the partner’s capital account, the company will close the capital
account and create a liability for the balance.
Strategy: If the retiring partner is selling his interest to other partners who will remain in
the partnership, the transaction occurs between the partners. The partnership will need
to decrease the retiring partner’s capital account and increase the remaining partners’
capital accounts. If the transaction occurs between the partner and partnership, the
partnership will need to decrease the balance of the assets given to the retiring partner
and decrease the retiring partner’s capital account balance (done by debiting the
account). If a partner dies rather than retiring, his interest will be paid to his estate. To
ensure he receives his share, the capital account should be adjusted to include his share
of the net income and his share of the value of the net assets.
31. Prior to liquidation, Hill & Parks prepared the simplified trial balance below. The
partners, Hill and Parks share income and losses in a ratio of 3:2. Upon liquidation on
December 31, 2015, the partnership sells all noncash assets for $72,000. Prepare a
statement of partnership liquidation showing all steps the partnership will take upon
liquidation.
Hill & Parks
Post-Closing Trial Balance
December 1, 2015
Dr. Balance Cr. Balance
Cash 32,400
Noncash assets 70,200
Liabilities 43,700
Hill, capital 29,400
Parks, capital 29,500
102,600 102,600
Hill & Parks

Statement of Partnership Liquidation
For Period December 1–31, 2015
Capital
Noncash Parks
Cash + Assets = Liabilities + Hill (60%) + (40%)
Balances before realization $ 32,400 $ 70,200 $ 43,700 $ 29,400 $ 29,500
Sale of assets & division of gain 72,000 (70,200) 1,080 720
Balances after realization $104,400 $ 0 $ 43,700 $ 30,480 $ 30,220
Payment of liabilities (43,700) (43,700)
Balances after payment of liabilities $ 60,700 $ 0 $ 0 $ 30,480 $ 30,220
Cash distributed to partners (60,700) (30,480) (30,220)
Final balances $ 0 $ 0 $ 0 $ 0 $ 0
18 Chapter 12
32. Assume the same information as in Exercise 31, except that the partnership sells the
noncash assets at a loss for $68,000 on December 31, 2015. Prepare the statement of
partnership liquidation.
Hill & Parks

Capital
Noncash Liabilities Hill (60%) Parks
Cash + Assets = + + (40%)
Sale of assets & division of loss 68,000 (70,200) (1,320) (880)
Balances after realization $100,400 $ 0 $ 43,700 $ 28,080 $ 28,620
Final balances $ 0 $ 0 $ 0 $ 0 $ 0
33. Using the same information as in Exercise 31, assume the noncash assets are sold at a
larger loss for $15,000 in cash. Prepare the statement of partnership liquidation and
determine how much each partner must contribute for any deficiencies.
Hill & Parks

Capital
Noncash Liabilities Hill (60%) Parks
Cash + Assets = + + (40%)
Sale of assets & division of loss 15,000 (70,200) (33,120) (22,080)
Balances after realization $ 47,400 $ 0 $ 43,700 $ (3,720) $ 7,420
Balances after payment of liabilities $ 3,700 $ 0 $ 0 $ (3,720) $ 7,420
Receipt of deficiency 3,720 3,720
Balances $ 7,420 $ 0 $ 7,420
Cash distributed to partners (7,420) (7,420)
Final balances $ 0 $ 0 $ 0 $ 0 $ 0
Hill would need to contribute $3,720 to the partnership to cover his deficiency.
34. On March 15, 2015, the J&T Partnership decided to liquidate and ceased operations. On
this date, the company prepared the following simplified trial balance. Upon liquidation
on April 30, 2015, the noncash assets were sold for $26,200. Assuming that the
partners, Jolly and Topsy, share income and losses 3:1, prepare a statement of
partnership liquidation.
J&T Partnership
March 15, 2015
Cash 67,300
Liabilities 18,750
Jolly, capital 39,400
Topsy, capital 31,550
89,700 89,700
J&T Partnership
For Period March 15-April 30, 2015
Capital
Noncash Jolly (75%) Topsy
Cash + Assets = Liabilities + + (25%)
Sale of assets & division of gain 26,200 (22,400) 2,850 950
Balances after realization $ 93,500 $0 18,750 $ 42,250 $ 32,500
Final balances $ 0 $ 0 $ 0 $ 0 $ 0
20 Chapter 12
35. Assume the same information as in Exercise 34, except that the partnership sells all
noncash assets at a loss for $18,200. Prepare the statement of partnership liquidation.
J&T Partnership
Capital
Noncash
Cash + Assets = Liabilities + Jolly (75%) + Topsy (25%)
Balances after realization $ 85,500 $ 0 $ 18,750 $ 36,250 $ 30,500
Balances after payment of liabilities $66,750 $ 0 $ 0 $ 36,250 $ 30,500
Final balances $ 0 $ 0 $ 0 $ 0 $ 0
36. Using the same information as in Exercise 34, assume the noncash assets have a balance
of $62,400 and Topsy’s capital account has a balance of $71,550 when discontinuing
operations. Upon liquidation, the company sells the noncash assets for $7,500. Prepare
the statement of partnership liquidation and determine how much each partner must
contribute for any deficiencies.
J&T Partnership
Capital
Noncash
Cash + Assets = Liabilities + Jolly (75%) + Topsy (25%)
Balances after realization $ 74,800 $ 0 $ 18,750 $ (1,775) $ 57,825
Balances after payment of liabilities $ 56,050 $ 0 $ 0 $ (1,775) $ 57,825
Receipt of deficiency 1,775 1,775
Balances $ 57,825 $ 0 $ 0 $ 0 $ 57,825
Final balances $ 0 $ 0 $ 0 $ 0 $ 0
Jolly would need to contribute $1,775 to make up for his deficiency.
37. The Friendly Partnership ceased operations on May 6, 2015, and prepared the following
simplified trial balance. Upon liquidation on May 25, 2015, the noncash assets were sold
for $27,900. If the partnership agreement states that the partners, Beth Friend and Lily
Friend, share income according to a 4:1 ratio, prepare the statement of partnership
liquidation.
The Friendly Partnership

May 6, 2015
Cash 48,300
Liabilities 15,900
Beth Friend, capital 25,700
Lily Friend, capital 28,350
69,950 69,950

For Period May 6-25, 2015
Capital
Noncash Liabilities Beth Friend Lily Friend
Cash + Assets = + (80%) + (20%)
Sale of assets & division of gain 27,900 (21,650) 5,000 1,250
Balances after realization 76,200 $ 0 $ 15,900 $ 30,700 $ 29,600
Final balances $ 0 $ 0 $ 0 $ 0 $ 0
Strategy: First, record the sale of the noncash assets by removing them from the books
for the amount recorded. Cash should be increased by the amount received for the
noncash assets. The gain (increase in net assets) should increase the partners’ account
balances based upon the stated percentages. Next, the partnership pays its liabilities,
which should also decrease cash. The remaining cash (since it is the only asset
remaining) is the amount owed to the partners (the balance in their capital account).
22 Chapter 12
38. Assume the same information as in Exercise 37, except that the partnership sells all
noncash assets at a loss for $15,900. Prepare the statement of partnership liquidation.
Capital
Cash + Assets = + (80%) + (20%)
Balances after realization $ 64,200 $ 0 $ 15,900 $ 21,100 $ 27,200
Final balances $ 0 $ 0 $ 0 $ 0 $ 0
Strategy: The steps to partnership liquidation when there is a loss on realization is the
same as when there is a gain on realization. However, the loss should decrease the
partners’ capital accounts by the agreed upon percentages rather than increase the
capital accounts, since the cash received is less than the asset taken off. The decrease
ensures that the net assets equal the owners’ equity.
39. Using the same information as in Exercise 37, assume the noncash assets have an
account balance of $42,650 and Lily Friend’s capital account has a balance of $49,350
prior to liquidation. The company sells the noncash assets at a loss for $10,000 cash.
Prepare the statement of partnership liquidation and determine the amount each
partner must contribute for any deficiencies.
Capital
Cash + Assets = + (80%) + (20%)
Balances after realization $ 58,300 $ 0 $ 15,900 $ (420) $ 42,820
Balances after payment of liabilities $ 42,400 $ 0 $ 0 $ (420) $ 42,820
Receipt of deficiency 420 420
Balances $ 42,820 $ 0 $ 0 $ 0 $ 42,820
Final balances $ 0 $ 0 $ 0 $ 0 $ 0
Strategy: If a loss on realization results in a partner’s capital account having a deficit,

the partner must contribute to the partnership for the amount of the deficit to ensure
that net assets equals owners’ equity. By removing the deficit, the owner will ensure that
he is not receiving more from the partnership than what he contributed. The owner must
contribute for the deficit because partnerships provide no legal liability. If an owner is
unable to contribute to the partnership for his deficit, another partner will have to
contribute because he also has liability for any losses.
40. Prepare the journal entries for the liquidation of Hill & Parks, using the information that
results in a gain from realization in Exercise 31.
Dec. 31 Cash 72,000

Noncash Assets 70,200
Gain on Realization 1,800
31 Gain on Realization 1,800
Hill, Capital 1,080
Parks, Capital 720
31 Liabilities 43,700
Cash 43,700
31 Hill, Capital 30,480
Parks, Capital 30,220
Cash 60,700
41. Prepare the journal entries for the liquidation of J&T Partnership, using the information
that results in a loss from realization in Exercise 35.
April 30 Cash 18,200

Loss on Realization 4,200
30 Jolly, Capital 3,150
Topsy, Capital 1,050
Cash 18,750
30 Jolly, Capital 36,250
Topsy, Capital 30,500
Cash 66,750
24 Chapter 12
42. Prepare the journal entries for the liquidation of The Friendly Partnership, using the
information that results in a loss from realization and capital deficiencies in Exercise 39.
May 25 Cash 10,000

25 Beth Friend, Capital 26,120
Lily Friend, Capital 6,530
Cash 15,900
25 Cash 420
Beth Friend, Capital 420
25 Lily Friend, Capital 42,820
Cash 42,820
Strategy: Preparing the statement of partnership liquidation first is helpful to break

down the steps of the liquidation and visualize what the partnership receives and
removes from the books at each step (receiving cash for the assets sold, resulting in a
gain or loss in Step 1).
43. On January 1, 2015, Hill’s capital account had a balance of $42,100, while Parks’ capital
account had a balance of $31,500 in their partnership, Hill & Parks. During the year,
Parks contributed a new building, worth $15,650, to the partnership. Each partner also
withdrew $10,200 from the partnership. Prepare the statement of partnership equity
for the 2015 fiscal year ending December 31, 2015, if the partnership earned $6,100 in
net income. Hill and Parks also share net income and losses according to a ratio of 3:2.
Hill & Parks

Statement of Partnership Equity
For the Year Ended December 31, 2015
Hill, capital Parks, capital Total Partnership Capital

Balance, Jan. 1, 2015 $ 42,100 $ 31,500 $ 73,600
Capital additions 15,650 15,650
Net income for the year 2,440 3,660 6,100
Less partner withdrawals (10,200) (10,200) (20,400)
Balance, Dec. 31, 2015 $ 34,340 $ 40,610 $ 74,950
44. On April 1, 2015, Josh T.’s capital account had a balance of $64,700 and James T.’s
capital account had a balance of $46,500. During the year, Josh T. made a $1,500 cash
contribution and James T. made a $5,200 cash contribution to their partnership, J&J
Partnership. Each partner also made withdrawals of $32,100 during the year. The
partnership also earned $1,500 in net income for the year, which Josh T. and James T.
share according to a 4:1 ratio. Prepare the statement of partnership equity for the 2015
fiscal year ending March 31, 2016.
J&J Partnership
For the Year Ended March 31, 2016
Josh T., capital James T., capital Total Partnership Capital

Balance, April 1, 2015 $ 64,700 $ 46,500 $111,200
Capital additions 1,500 5,200 6,700
Net income for the year 1,200 300 1,500
Balance, March 31, 2016 $ 35,300 $ 19,900 $ 55,200
45. On October 1, 2015, Kelly R.’s capital account had a $12,000 balance while Jeff G.’s
capital account had an $18,500 balance in their partnership, KJ Associates. During the
year, Kelly R. contributed $7,200 worth of equipment, and Jeff G. contributed $1,600
cash. Jeff G. and Kelly R. withdrew $5,200 and $2,150, respectively from the
partnership. The partnership had a net loss of $1,700 for the fiscal year, which Jeff G.
and Kelly R. share in a 3:1 ratio. Prepare the statement of partnership equity for the
2015 fiscal year ending September 30, 2016.
KJ Associates
For the Year Ended September 30, 2016
Kelly R., capital Jeff G., capital Total Partnership Capital

Balance, Oct. 1, 2015 $12,000 $ 18,500 $ 30,500
Capital additions 7,200 1,600 8,800
Net loss for the year (425) (1,275) (1,700)
Balance, Sept. 30, 2016 $ 16,625 $ 13,625 $ 30,250
26 Chapter 12
Strategy: Begin with the each partner’s beginning balance in his/her capital account.
Capital additions should be added to the balance, since the partner is contributing more
net assets to the partnership. Next, allocate the amount of the net income or loss to each
partner according to the agreed upon percentages in the partnership agreement. If the
partnership earns net income for the year, the allocated income should be added to the
partner’s capital account. If the partnership has a net loss for the year, the allocated loss
should be subtracted from the partner’s capital account balance because the partner is
responsible for any losses. Withdrawals (assets taken from the partnership) should
decrease the partner’s account balance for the amount of the withdrawal to ensure that
net assets equal owners’ equity.
46. Use the information below to calculate the revenue per employee for Mark’s Ice Cream
for 2015 and 2016. Round answers to two decimal places. Determine if the change is
favorable or unfavorable.
2016 2015
Revenue $72,800 $65,700
Number of employees 500 475
Revenue per employee $145.60 $138.32
The increase in revenue per employee is a favorable change.

47. Using the table below, calculate the revenue per employee for both companies. Round
answers to two decimal places. Determine which is more efficient in generating revenue
from its employees.
ABC Co. XYZ Inc.
Revenue $10,500,000 $2,190,000
Number of employees 2,100 700
Revenue per employee $5,000.00 $3,128.57
Because ABC Co. has higher revenue earned per employee, the company is more
efficient than XYZ Inc. in generating revenue per employee.
48. Calculate the revenue per employee for Haley’s Hair Salon for 2015 and 2016 using the
information in the table below. Round answers to two decimal places. Determine if the
change is favorable or unfavorable.
2016 2015
Sales revenue $1,007,500 $1,350,000
Advertising revenue 12,850 4,900
Number of employees 775 750
Revenue per employee $ 1,316.58 $ 1,806.53
($1,007,500 + $12,850)/775 ($1,350,000 + $4,900)/750
The change is unfavorable because the revenue per employee decreased from 2015 to
2016.
Strategy: Calculate the revenue per employee by dividing the total revenue for the year
by the total number of employees. The ratio gives the revenue the business earns per
employee. If the revenue per employee increases, the business is earning more revenue
per employee, which is favorable. A decrease in the revenue per employee is unfavorable
because the company is working less efficiently and generating less revenue per
employee.

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Chapter 12

Accounting for Partnerships and Limited Liability Companies

Aug. 1 Cash 475

Aug. 21 Cash 970

Aug. 21 Cash 970

Sept. 30 Income Summary 247,000

Mar. 31 Income Summary 300,000.00

Dec. 31 Income Summary 192,600

Kelly R. Rose C. Total

Monthly Salary Allowance Capital Balance on January 1, 2015

Jack L. Matthew C. Total

Monthly Salary Allowance Capital Balance on January 1, 2015

Wyatt Parks Michael Burns Total

Kelly R. Rose C. Total

Wyatt Parks Michael Burns Total

James S. Josh P. Turner L. Total

Oct. 1 Marie C., Capital 24,000

Marie C., Capital Jonathan L., Capital Ryan T., Capital

Sept. 15 Taylor P., Capital 11,000

Thomas K., Capital Taylor P., Capital Alex M., Capital

Thomas K.: 60% ($80,000/$133,000)

Nov. 1 James G., Capital 25,000

James G., Capital Josh T., Capital Laura B., Capital

Strategy: Buying an interest in a partnership from an existing partner involves a

Oct. 1 Equipment 54,000

Jan. 3 Building 75,000

21. Regan T. becomes a partner in an existing partnership by contributing cash of $10,000

Mar. 5 Cash 10,000

Net assets and owners’ equity will both increase by $22,000.

June 15 Merchandise Inventory 2,400

May 5 Long-term Investment 10,500

Mar. 4 Equipment 600

Taylor Robertson, capital $28,000

Mary Taylor, capital $25,000

July 10 Cash 22,000

Bell, capital $ 54,000

Hughes' contribution $ 42,000

March 15 Equipment 42,000

Nix, capital $ 61,500

Lee's contribution $ 50,000

Aug. 25 Cash 50,000

Nix: (3/4) × $9,820

Dec. 31 Terry, Capital 51,500

Dec. 31 Terry, Capital 51,500

Hill & Parks

Hill & Parks

Hill & Parks

Jolly would need to contribute $1,775 to make up for his deficiency.

The Friendly Partnership

The Friendly Partnership

Strategy: If a loss on realization results in a partner’s capital account having a deficit,

Dec. 31 Cash 72,000

April 30 Cash 18,200

May 25 Cash 10,000

Strategy: Preparing the statement of partnership liquidation first is helpful to break

Hill & Parks

Hill, capital Parks, capital Total Partnership Capital

Josh T., capital James T., capital Total Partnership Capital

Kelly R., capital Jeff G., capital Total Partnership Capital

The increase in revenue per employee is a favorable change.

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