Chapter 16 

PARTNERSHIPS — FORMA
FOR MATION,
TION, OPERATIONS,
OPERATIONS, AND
CHANGES IN OWNERSHIP INTERESTS

Answers to Questions

1 A partnership has a characteristics as foo!s"

a# O!ne$ %& t!o or 'ore persons#

persons# It
It can(t %e sai$ as a partnership
partnership if it is o!ne$
o!ne$ %&
%& a sin)e
sin)e person#
person#

 %# M*t*a a)enc&# It 'eans e+er& partner act as an a)ent in the partnership#
partn ership# The action of e+er&
e+er&
 partner on %ehaf of the partnership
partners hip can %in$ the other partners#
partn ers#

c# ni'ite$ ia%iit&
ia%iit&## E+er&
E+er& partner
partner is ia%e
ia%e for
for the partnership
partnership $e%ts#
$e%ts# If
If the partnership
partnership asset
asset is not
not
s*fficient to retire the $e%ts, partners sho*$ *se their persona asset to retire the partnership
$e%ts#

2 Artices of partnership e-pain the a)ree'ent of partners in the partnership# The artice sho*$ inc*$e the
a)ree'ent of"

$# The t&pes
t&pes of pro$*cts
pro$*cts an$ ser+ices
ser+ices to %e pro+i$e$
pro+i$e$ an$
an$ other $etais of the %*siness(
%*siness(ss operations#
operations#
E-a'pe" a resta*rant partnership pro+i$es +ariet& of tra$itiona foo$s an$ $rin.s to the
c*sto'ers#

e. Each partner(s ri)hts an$ responsi%iities in con$*ctin) the %*siness# E-a'pe" an acti+e partner
has responsi%iities to %eco'e the 'ana)ers of the partnership#

f. Each partner(s initia in+est'ent inc*$in) the +a*e assi)ne$ to noncash asset in+est'ents#
E-a'pe" Partner A initia& in+ests / 0,111 cash an$ / 0,111 in the for' of +ehice#

)# A$$itiona
A$$itiona in+est'ent
in+est'ent con$itions#
con$itions# E-a'pe"
E-a'pe" Each
Each partner 'a&
'a& a$$
a$$ 'ore in+est'ent
in+est'ent in the for'
for'
of cash or other assets nee$e$ %& the partnerships#

h# Asset
Asset !ith$ra!a
!ith$ra!a pro+isio
pro+isions#
ns# E-a'pe"
E-a'pe" Each partner has a ri)ht to !ith$ra! /211 cash
cash each
each
'onth cre$ite$ to the partner capita acco*nt#

i# Profit3
Profit3 an$ oss3
oss3sharin)
sharin) for'*as
for'*as## E-a'pe" Profit
Profit an$ oss
oss are
are share$
share$ %ase$
%ase$ on
on the a+era)e
a+era)e
capita %aance of each partner#

 4# Proce$*res for $isso+in) the partne rship# E-a'pe" The partnership
partnershi p !i %e $isso+e$ if there is
ne! partner or an& of the partners !ith$ra!#

3 In+est
In+est'en
'entt in a partners
partnership
hip can %e in the for' of non3cash
non3cash assets#
assets# The non3cash
non3cash assets
assets sho*$
sho*$ %e
appraise$ to $eter'ine the +a*e that sho*$ %e reco)ni5e$ %& the partnership# It sho*$ %e appraise$ %&
in$epen$ent appraisa# Ho!e+er, as a practica 'atter, it 'a& %e $eter'ine$ %& the a)ree'ent of the
 partners#

4 Saar& an$ interest ao!ances are inc*$e$ in so'e partnership a)ree'ents in or$er to re!ar$ partners
for
for the ti'e an$ effo
effort
rt that the&
the& $e+ot
$e+otee to partners
partnership
hip %*s
%*sine
iness
ss 6saar&
6saar& ao!anc
ao!ances7
es7 an$ for
for capita
capita
in+est'ents 6interest ao!ances7 that the& 'a.e in the %*siness#

5 Saar& ao!ances to partners are not e-penses of a partnership# Rather, the& are a 'eans of reco)ni5in)
the efforts of in$i+i$*a partners in the $i+ision of partnership inco'e#

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16- 2  Partnerships—Formation, Operations and Changes in Ownership Interests

6 When profits are $i+i$e$ in the ratio of capita %aances, capita %aances sho*$ %e co'p*te$ on the %asis
of !ei)hte$ a+era)e capita %aances in the a%sence of e+i$ence that another interpretation of capita
 %aances is inten$e$
int en$e$ %& the partners#

7 An in$i+i$*a partner 'a& ha+e a oss fro' his share of partnership operatin) acti+ities e+en tho*)h the
 partnership
 partnershi p has inco'e# This sit*ation res*ts if priorit& aocations to other partners e-cee$ partnership
partners hip
net inco'e# For e-a'pe, if net inco'e for the A an$ 8 Partnership is /0,111 an$ profits are $i+i$e$
e9*a& after a saar& ao!ance of /:,111 to A, A !i ha+e partnership inco'e of /;,011 an$ 8 !i ha+e
a partnership oss of /2,011#

8 Partnership $issociation *n$er the nifor' Partnership Act is the chan)e in the reation of the partners
ca*se$ %& an& partner ceasin) to %e associate$ in the carr&in) on of the %*siness, as $istin)*ishe$ fro' the
!in$in) *p of the %*siness# Th*s, the assi)n'ent of a partnership interest to a thir$ part& %& one of the
 partners $oes not, %& itsef, $isso+e the partnership %eca*se the assi)nee $oes not %eco'e a partner
part ner *ness
* ness
accepte$ as a partner %& the contin*in) partners#

9 The sae of a partnership interest to a thir$ part& $isso+es the o$ partnership if the contin*in) partners
accept the thir$ part& p*rchaser as their partner# In this case, the reation a'on) the partners is chan)e$
an$ a ne! partnership a)ree'ent is necessar&#

10 When a ne! partner ac9*ires an interest %& p*rchase

p*rchase fro' e-istin) partners, the partnership recei+es
recei+es no
ne! assets
assets %eca*
%eca*se
se the pa&'en
pa&'entt for
for the ne! partner(s
partner(s interest
interest is $istri%
$istri%*te
*te$
$ to the o$ partners#
partners#
Aternati+e&, an in+est'ent in a partnership increases the net assets of the partnership# This $ifference is
i'portant in acco*ntin) for the a$'ission of a ne! partner#

11 The a$'ission of a ne! partner 'a& %e recor$e$ %& the  goodwill approach 6or re+a*ation approach7 or 
 %& the bonus approach 6or nonre+a*ation approach7#

12 The )oo$!i proce$*re for recor$in) the a$'ission of a ne! partner is %est $escri%e$ as a re+a*ation
approach
approach %eca*se
%eca*se i$entifia%e
i$entifia%e assets an$ ia%iities that are o+er or *n$er+a*e$
*n$er+a*e$ are a$4*ste$
a$4*ste$ to their fair 
+a*es %efore the *ni$entifia%e asset )oo$!i is recor$e$# For e-a'pe, if a ne! partner(s in+est'ent
refects the fact that an$ o!ne$ %& the o$ partnership is *n$er+a*e$, it !o*$ %e 'isea$in) to recor$
the a'o*nt of re+a*ation as )oo$!i, rather than as a re+a*ation of the an$ acco*nt#

13 A %on*s proce$*re for recor$in) an in+est'ent in a partnership in+o+es a$4*stin) the partnership capita
acco*nt to the e-tent necessar& to 'eet the ne! partnership a)ree'ent !itho*t a re+a*ation of the assets
an$ ia%iities of the o$ partnership#

If a ne! partner recei+es a capita cre$it in e-cess of his or her in+est'ent, the e-cess is a %on*s to the
ne! partner#
partner# A %on*s to a ne! partner is char)e$
char)e$ a)ainst the o$ partners( capita
capita %aances
%aances in reation to
their o$ profit sharin) ratios#

If a ne! partner(s in+est'ent e-cee$s his or her capita cre$it, the e-cess is a %on*s to the o$ partners# A
 %on*s to the o$ partners is cre$ite$ to the o$ partners( capita %aances in accor$ance !ith the o$
 partners( profit sharin) ratios#

14 The a'o*nts recei+e$ %& the in$i+i$*a partners in fina i9*i$ation !i %e the sa'e *n$er the %on*s an$
)oo$!i proce$*res pro+i$e$ that the reati+e profit an$ oss sharin) ratios of the o$ partners re'ain
*nchan)e$ in the ne! partnership an$ that the ne! partners( capita interest an$ profit an$ oss sharin)
ratio are ai)ne$#

15 Parts a an$ % ass*'e that the partnership assets are to %e re+a*e$ *pon the a$'ission of 8o% into the
 partnership#
 partnershi p#
Goo$!i !o*$ %e recor$e$ if i$entifia%e assets an$ ia%iities are e9*a to their fair +a*es an$
2# /21,111 ¸ <0= > /21,111 ? o$ capita@ or 
<# O$ capita ¸ 0= > /21,111 ? o$ capita@ or 

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Chapter 16    16-3

B# An in$e
in$epe
pen$
n$ent
ent ass
asses
ess'
s'en
entt of earn
earnin)
in) po!
po!er
er or othe
otherr fac
facto
tors
rs in$ic
in$icate
ate )oo$
)oo$!i!i#
#
O$ partnership assets !o*$ %e !ritten $o!n if 
2# /21,111 ¸ <0=  /21,111 ? o$ capita@ or 
<# O$ capita ¸ 0=  /21,111 ? o$ capita@ or 
B# An in$e
in$epe
pen$
n$ent
ent ass
asses
ess'
s'en
entt of earn
earnin)
in) po!e
po!err or othe
otherr fact
factor
orss in$ic
in$icate
ate tha
thatt partne
partnersh
rship
ip asse
assets
ts are
are
o+er+a*e$#
Parts c an$ $ ass*'e that partnership assets are not to %e re+a*e$ *pon the a$'ission of 8o%
into the partnership# A %on*s to the o$ partners !o*$ %e recor$e$ if <0= ´ 6/21,111 ? o$ capita7 is ess
than /21,111# A %on*s to 8o% !o*$ %e recor$e$ if <0= ´ 6/21,111 ? o$ capita7 is )reater than /21,111#

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16- 4  Partnerships—Formation, Operations and Changes in Ownership Interests

SOLUTIONS TO EXERCISES

Solution E16-1

1. Initia
Initial
l inve
invest
stmen
ments
ts of
of part
partner
ners
s are
are reco
recorde
rded
d at
at fair
fair valu
value
e inst
instea
ead
d of
cost.

ichelle !evina "otal

Cash # $50%000 # &00%000 # '50%000
Land # 10%000%000 # 10%000%000
"ruc( # )%500%000 # )%500%000
Computer # 1%&00%000 # 1%&00%000
Inventory # 200%000 # 200%000
"otal # )%*50%000 # 11%+00%000 # 1+%'50%000
Percentage &'.0', )2.*&, 100.00,

-sing onus approach% each partner /ill have eual capital alance from
the total investments.

ichelle capital #1+%'50%00023 #*%&'5%000

!evina capital #1+%'50%00023 #*%&'5%000

2. "he partnership
partnership fair value
value can e determined
determined from partner
partner that doesn4t
doesn4t
ring good/ill to the partnership% /hich is !evina.

Partnership fair value #11%+00%000  50,3 #2&%)00%000

Each partner /ill have eual capital alance

ic
ichell
elle cap
capital #2&
#2&%)00%
00%000
0023 #11%
11%+00%
00%000
!evina ca
capital #
#2&%)00%00023 #11%+00%000

&. "otal partnership euity after revaluation #2&%)00%000

"otal partnership euity efore revaluation #1+%'50%0003
ood/ill # $%+50%000

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Chapter 16    16-5

Solution E16-2

Computation of 6ev4s onus7

Let 6 8 onus
6 8 10, ´ #1*+%000 9 63
6 8 #1*%+00 9 .16
 1.16 8 #1*%+00
6 8 #1+%000

:chedule to ;llocate Partnership Income

 ;rn 6ev Car

<et income to distriute #1*+%000
6onus to 6ev 1+%0003 #1+%000
=emainder to divide 1+0%000
!ivided $07$0720 1+0%0003 #'2%000 '2%000 # &)%000
Income allocation 0 #'2%000 #*0%000 # &)%000

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16- 6  Partnerships—Formation, Operations and Changes in Ownership Interests

Solution E16-3

el !av
2012 income to divide
#25%000 9 #$%0003 #21%000
:alary to el 1+%0003 #1+%000
=emainder to divide &%000
!ivided eually &%0003 1%500 # 1%500
0

2011 income understatement # $%000

!ivided in the 2011 )07$0 ratio $%0003 2%$00 1%)00
Income allocation 0 #21%*00 # &%100

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Chapter 16    16-7

Solution E16-4

:chedule to ;llocate Partnership Income for 2011

6alance !an
  >en 6ai
Income to distriute #2+%000
:alary allocation $2%0003 # 999 # 1+%000 #2$%000
Interest on capital ? 52%0003 21%000 1)%000 15%000
Loss to divide ))%0003
!ivided eually ))%000 22%0003 22%0003 22%0003
Income to partners 0 #1%0003 #12%000 #1'%000

? Interest on average capital7

@anuary 1% 2011 ;verage Interest

  6alances
  Capital on Capital
!an #200%000 ´ 12 year 8 #100%000
 2$0%000 ´ 1$ year 8   )0%000
 200%000 ´ 1$ year 8   50%000
#210%000 ´  10, 8 #21%000

>en # 1)0%000 ´  1 year 8 #1)0%000 ´  10, 8  1)%000

6ai # 150%000 ´  1 year 8 #150%000 ´  10, 8  15%000

#52%000

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16- 14  Partnerships—Formation, Operations and Changes in Ownership Interests

Solution E16-13

1 Income ;llocation :chedule

 Fat Edd
  "otal
<et income #&0%000
6onus to Fat 1%5003 1%500 1%500
=emainder 2+%500
:alary allo/ance 25%0003 10%000 15%000 25%000
=emainder &%500
5050 split &%5003 1%'50 1%'50 &%500
=emainder 909 #1&%250 #1)%'50 #&0%000

2 =evenue and Epense :ummary #&0%000

Fat Capital #1&%250
Edd Capital #1)%'50
;llocate partnership net income for the year to the partners.

Fat Capital #15%000

Fat !ra/ing #15%000
Edd Capital #10%000
Edd !ra/ing #10%000
Close the dra/ing accounts to the capital accounts.

3 Capital ;ccounts
K & E !"tn#"$%i
:tatement of Partners4 Capital
or the year ended !ecemer &1 2011

 Fat Edd
Capital alances @anuary 1% 2011 #$*)%'50 #2)+%250
;dd7 ;dditional investments 5%000 5%000
!educt7 Aithdra/als 0 0
!educt7 !ra/ings 15%0003 10%0003
;dd7 <et income 1&%250 1)%'50
Capital alances !ecemer &1% 2011 #500%000 #2+0%000

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Chapter 16    16-15

Solution E16-14

1 Galuation of assets and liailities as implied y ecess payment to 6o7

6uilding #10%000
ood/ill $0%000
6yd capital # 15%000
6o capital 10%000
!ar capital 20%000
us capital 5%000
"o record revaluation of uilding and good/ill implied y the
ecess payment to 6o on his retirement #10%000 ¸ 20, 8 #50%000
revaluation3.

6o capital #&5%000

Cash # &5%000
"o record cash payment to 6o on his retirement from the usiness.

2 <o revaluationH onus to retiring partner7

6o capital #25%000
6yd &0+03 &%'50
!ar $0+03 5%000
us10+03 1%250
Cash # &5%000
"o record a #10%000 onus to 6o upon retirement.

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16- 16  Partnerships—Formation, Operations and Changes in Ownership Interests

Solution E16-15

1 a
6il4s contriution #20%000 D #)0%000 D #15%000 9 #&0%0003 # )5%000
Fen4s contriution 50%000
"otal tangile contriutions #115%000
Fen4s contriution #50%000.$ interest 8 #125%000 total capital
"otal capital ased on Fen4s contriution #125%000 less amount
contriuted y Fen and 6il #115%000 8 #10%000 good/ill

2 c
@ay4s investment of #)5%000 is greater than his capital credit of 1& of
#1'5%000H thus% there is good/ill to the old partners.
<e/ capital 8 #)5%000  1& 8 #1*5%000
¸

<e/ capital of #1*5%000 9 old capital #110%000 D #)5%000 investment3 8

#20%000 good/ill.
=evaluation is recorded7
ood/ill other assets3 #20%000
"ho capital 50,3 # 10%000
ar capital 50,3 10%000
ar4s capital 8 #)0%000 D #10%000 good/ill 8 #'0%000

3 c
"otal capital #1'0%000 D #200%000 D #200%0003 8 #5'0%000
en4s interest #5'0%000 ´ 1& 8 #1*0%000
"herefore% "in and Ae receive a #10%000 onus% shared eually.

4 c
#*0%000 investment J 25, ´ #100%000 D #+0%000 D #*0%0003% thus% there
is good/ill to the old partners.

<e/ capital #*0%00025, #&)0%000

Bld capital D ne/ investment #1+0%000 D #*0%000 2'0%0003
ood/ill # *0%000

in capital #100%000 D 50, ´ #*0%000 good/ill3 #1$5%000

=ho capital #+0%000 D 50, ´ #*0%000 good/ill3  125%000
Che capital *0%000
"otal capital #&)0%000

5 
Payment to in at retirement #200%000
Capital account efore recording share of good/ill 1'0%000
in4s share of good/ill # &0%000

"otal good/ill for partnership #&0%000.&3 #100%000

"otal assets efore in4s retirement #2$0%000 cash D

#&)0%000 other assets D #100%000 good/ill3 #'00%000
Less7 Payment to in on retirement 200%000

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Chapter 16    16-27

SOLUTIONS TO RO.LES

Solution 16-1

Preliminary computation
6eginning capital #)*%000 D #+5%500 D #2$5%5003 #$00%000
Capital adNustments7 ;dditional investment less /ithdra/als $%0003
 &*)%000
Ending capital $+1%0003
<et income # +5%000

Ell+ /!"+ !n) !"

:tatement of Partnership Capital
for the year ended !ecemer &1% 2011

Ell ar ar

  "otal
Capital alance @anuary 1 #)*%000 #+5%500 #2$5%500 #$00%000
;dd7 ;dditional investment 20%000 20%000
!educt7 :alary allo/ances 12%0003 12%0003 2$%0003
<et contriuted capital 5'%000 '&%500 2)5%500 &*)%000
Income allocation see
schedule3 2$%200 2$%200 &)%)00 +5%000
Capital alance !ecemer &1 #+1%200 #*'%'00 #&02%100 #$+1%000

Income allocation schedule7

"otal Ell ar ar
Income to divide #+5%000
:alary allo/ances 2$%0003 #12%000 #12%000
=emainder to divide )1%000
!ivided 207207)0 )1%0003 12%200 12%200 # &)%)00
Income allocation 0 #2$%200 #2$%200 # &)%)00

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16- 28  Partnerships—Formation, Operations and Changes in Ownership Interests

Solution 16-2

1 o"+ O$(+ !n) T"# !"tn#"$%i

6alance :heet
at @anuary 2% 2011

Cash #20%000 D #*5%0003 #115%000

;ccounts receivale  — net  100%000
Inventories 200%000
Plant assets  — net #120%000 D #120%0003  2$0%000
ood/ill   $0%000a
"otal assets #)*5%000

;ccounts payale # 50%000

or capital 1& interest3
#120%000 D #+5%000  D #20%0003  225%000
Bsc capital 1& interest3
#100%000 D #+5%000  D #20%0003  205%000
"re capital 1& interest3  215%000c
"otal euities #)*5%000

a "re4s #215%000 ¸ 1& 8 #)$5%000 total capitaliation

#)$5%000 9 #)05%000 fv of old assets D "re4s investment 8 #$0%000 good/ill.
#$0%000 good/ill is divided eually et/een or and Bsc
 =evaluation of assets to fair value #1'0%000 divided eually et/een or
and Bsc3
c "re4s investment #*5%000 cash D #120%000 uilding3 8 #215%000

2 o"+ O$(+ !n) T"# !"tn#"$%i

6alance :heet
at @anuary 2% 2011

Cash #20%000 D #*5%0003 #115%000

;ccounts receivale  — net  100%000
Inventories 50%000
Plant assets  — net #100%000 D #120%0003  220%000
"otal assets #$+5%000
;ccounts payale # 50%000
or capital 1& interest3
#120%000 D #&5%000 a3  155%000
Bsc capital 1& interest3
#100%000 D #&5%000 a3  1&5%000
"re capital 1& interest3  1$5%000
"otal euities #$+5%000

a "re is paying a onus to or and Bsc ecause his investment of #215%000
#*5%000 cash and #120%000 uilding3 is /orth more than a 1& interest in
the oo( value of the comined assets #215%000 D #220%0003. "he #'0%000
onus is evenly divided et/een or and Bsc ased on their profit sharing
ratios. "he Nournal entry to record "re4s admission in the partnership is7
Cash *5%000
6uilding 120%000
"re Capital 1$5%000
or Capital &5%000
Bsc Capital &5%000

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Chapter 16    16-29

 "re4s investment #*5%000 cash D #120%000 uilding3 8 #215%000

6oo( value plus "re4s investment is #220%000 D #215%000 8 #$&5%000
"re gets a 1& interest or #1$5%000.

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16- 30  Partnerships—Formation, Operations and Changes in Ownership Interests

Solution 16-3

 $% !n) .!" !"tn#"$%i

Income !istriution :chedule for 2011

;sh 6ar
  "otal
<et income to divide #105%000
Interest allo/ance *%0003 # $%000 # 5%000 # *%000
=emainder to divide *)%000
:alary to ;sh 12%0003 12%000 12%000
=emainder to divide +$%000
6onus to ;sh
6 8 .2#+$%000 9 63
1.26 8 #1)%+00
6 8 #1$%000 1$%0003 1$%000 1$%000
=emainder to divide '0%000
!ivided eually '0%0003 &5%000 &5%000 '0%000
Income distriution 0 #)5%000 #$0%000 #105%000

Copyright © 2015 Pearson Education Limited

Chapter 16    16-43

Solution 16-12 continued3

S(%#)ul# o "oit !n) Lo$$ i$t"iution

<et Income Par 6oo

<et income #2$%000
:alary allo/ances 1+%0003 # +%000 # 10%000
=emainder to divide )%000
!ivide in average capital ratios7
Par 2+)$ or $&.'5,3 2%)253 2%)25
6oo &))$ or 5).25,3 &%&'53 &%&'5
!istriution of income 0 #10%)25 # 1&%&'5

Co,ut!tion o #"!# C!it!l .!l!n(#$

;verage capital of Par ;verage capital of 6oo

#&0%000 ´ 2 months 8 # )0%000 #&0%000 ´ $ months 8 #120%000
#2)%000 ´ 5 months 8  1&0%000 #$0%000 ´ ) months 8  2$0%000
#&0%000 ´ & months 8   *0%000 "otal #&)0%000
"otal #2+0%000
;verage capital ;verage capital
#2+0%00010 #&)0%00010
months3 # 2+%000 months3 # &)%000

3 !" !n) .oo !"tn#"$%i

:chedule of Profit and Loss !istriution
for the ten months ending !ecemer &1% 2011

<et Income Par 6oo

<et income #2$%000
:alary allo/ances 1+%0003 # +%000 # 10%000
=emainder to divide )%000
Interest allo/ance7
Par
  #2+%000 ´ 12,  1012 year
´ 2%+003 2%+00
6oo
#&)%000 ´ 12,  1012 year
´  &%)003

&%)00
Loss to divide $003
!ivide loss 50750 $00 2003 2003
!istriution of income 0 #10%)00 # 1&%$00

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16- 44  Partnerships—Formation, Operations and Changes in Ownership Interests

Solution 16-13

1 <o revaluation of partnership assets

$roposal %& "om purchases one9half of Pet4s capital from Pet

Pet capital #&'%500
"om capital #&'%500
"o record "om4s admission to the partnership for a one9fourth
interest in capital and profits y direct purchase of one9half of
Pet4s 50, interest. "om4s capital credit is eual to capital
transferred from Pet to "om #'5%000 ´ 50,3.

$roposal '& "om purchases one9fourth of each partners4 capital from

partners
Pet capital #1+%'50
Kua capital 12%500
:he capital )%250
"om capital #&'%500
"o record "om4s admission to the partnership y direct purchase of
one9fourth of each partner4s capital and future profits. "om4s
capital credit is eual to the capital transferred from the other
partners7 #'5%000 ´ 25,3 D #50%000 ´ 25,3 D #25%000 ´ 25,3.

$roposal (& "om invests cash in the partnership for a one9fourth

interest
Cash #55%000
Pet capital # 1%+'5
Kua capital 1%125
:he capital '50
"om capital 51%250
"o record "om4s #55%000 investment for a one9fourth interest in
capital and future profits. "otal capital is #150%000 D #55%000.
"om4s share of total capital is #205%000 ´ 25,% or #51%250. "om4s
investment of #55%000 less "om4s capital credit of #51%250 euals
#&%'50 onus to old partners.

2 Partnership assets are revalued

$roposal %& "om purchases one9half of Pet4s capital from Pet

ood/ill #*0%000
Pet capital #$5%000
Kua capital 2'%000
:he capital 1+%000
"o record good/ill on asis of the price paid y "om for a one9
fourth interest in capital and profits. "otal capital is #2$0%000
#)0%00025,3. "otal capital of #2$0%000 less recorded capital of
#150%000 euals #*0%000 good/ill.

Pet capital #)0%000

"om capital #)0%000
"o record "om4s purchase of one9half of Pet4s capital and right to
Pet4s profits.

Copyright © 2015 Pearson Education Limited

Chapter 16    16-45

Solution 16-13 continued3

$roposal '& "om purchases one9fourth of partners4 capital from partners

ood/ill #&0%000
Pet capital #15%000
Kua capital *%000
:he capital )%000
"o record good/ill on the asis of the price paid y "om for one9
fourth of the capital and profits of each of the partners. "otal
capital is #1+0%000 #$5%00025,3. "otal capital of #1+0%000 less
recorded capital of #150%000 euals #&0%000 good/ill.

Pet capital #22%500

Kua capital 1$%'50
:he capital '%'50
"om capital #$5%000
"o record "om4s admission to a one9fourth interest in partnership
capital and profits. "om4s capital is eual to the capital
transferred after revaluation7 #*0%000 ´ 25,3 D #5*%000 ´ 25,3 D
#&1%000 ´ 25,3.

$roposal (& "om invests cash in the partnership for one9fourth interest

ood/ill #15%000
Pet capital # '%500
Kua capital $%500
:he capital &%000
"o record good/ill ased on "om4s investment of #55%000 for a one9
fourth interest in partnership capital and profit. "otal capital
of #220%000 9 #150%000 recorded capital D #55%000 investment3 8
#15%000 good/ill.

Cash #55%000
"om capital #55%000
"o record "om4s #55%000 investment for a one9fourth interest in
capital and profits. "otal capital 8 #220%000H "om4s capital is
#220%000 ´ 25,% or #55%000.

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16- 46  Partnerships—Formation, Operations and Changes in Ownership Interests

Solution 16-14

1 ;verage capital alances

)im *as
#)0%000 ´ & months 8 #1+0%000 #'5%000 ´ $ months 8 #&00%000
 '0%000 ´ 5 months 8 &50%000  )&%000 ´ ) months 8  &'+%000
 )$%000 ´ $ months 8 25)%000  5'%000 ´ 2 months 8  11$%000
#'+)%000 #'*2%000
#'+)%00012 months 8 # )5%500 #'*2%00012 months 8 # ))%000

2  "im Las
  "otal
6eginning alances # )0%000 #'5%000 #1&5%000
;dd7 Investments 10%000 0 10%000
Less7 Aithdra/als )%0003 1+%0003 2$%0003
Less7 !ra/ings 1+%0003 2$%0003 $2%0003
<et contriuted capital $)%000 &&%000 '*%000
;dd7 <et income see schedule3 5$%)00 $+%$00 10&%000
Ending capital alances #100%)00 #+1%$00 #1+2%000

:chedule of income allocation7

 "im Las
<et income to allocate #1+2%000 9
#'*%000 #10&%000
:alary allo/ances $2%0003 #1+%000 # 2$%000
=emainder to divide )1%000
!ivided )0 7 $0 )1%0003 &)%)00 2$%$00
Income allocation 0 #5$%)00 # $+%$00

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