Fundamental Accounting Principles Wild 22nd Edition Solutions Manual

Fundamental Accounting Principles Wild 22nd
Edition Solutions Manual
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Fundamental Accounting Principles Wild 22nd Edition Solutions Manual
Chapter 12 - Accounting for Partnerships
Chapter 12
Accounting for Partnerships
QUESTIONS
1. Under the circumstances described, the death, bankruptcy, or legal inability of a
partner to execute a contract ends a partnership. In addition, if a partnership is
organized for the purpose of completing a specific business project, the partnership
ends when the project is completed. If the business for which the partnership was
organized cannot be completed, but goes on indefinitely, the partnership may be
dissolved at the will of any one of its partners.
2. Mutual agency means that each partner is an agent of the partnership and can
commit it to contracts that are within the normal scope of its business.
3. All partners in a general partnership have unlimited liability. A limited partnership
includes both general and limited partners, and the limited partners have no
personal liability for partnership debts. Also, the general partners assume the
management duties of the partnership.
4. Yes, partners can limit the right of a partner. Such an agreement is binding on
members of the partnership. It is also binding on outsiders who know of the
agreement. However, it is not binding on outsiders who do not know of the
agreement.
5. No, he does not have this right. A partnership is a voluntary association and
partners have the right to select the people with whom they associate as partners.
6. If partners agree on the method of sharing incomes, but say nothing of losses, then
any losses are shared in the same manner as income.
7. The allocation of net income to the partners is reported on the statement of partners'
equity.
8. Unlimited liability means that the creditors of a partnership have the right to require
each partner to be personally responsible for all debts of the partnership.
9. George's claim is not valid unless the previously agreed upon method of sharing net
incomes and losses granted George an annual salary allowance of $25,000. Unless
the partnership agreement says otherwise, partners have no claim to a salary
allowance in payment for their services.
12-681
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10. No. Kay is still liable to her former partners for her share of the losses.
11. At all times in the accounting history of a partnership (or any organization), assets
must equal liabilities plus equity. When the assets are converted to cash, any gains
or losses are allocated to the capital accounts of the partners; and when creditors'
claims are paid, assets and liabilities are reduced by equal amounts. Therefore,
when the remaining assets are in the form of cash, the amount of cash must equal
the claims (equity) of the partners.
12. The remaining partners should share the decline in their equities in accordance with
their income-and-loss-sharing ratio.
12-682
Education.
QUICK STUDIES
Quick Study 12-1 (10 minutes)
a. The partnership will need to pay because it is a merchandising firm.

That is, if the vendor knows nothing to the contrary, the vendor can
assume that Lester has the right, because of mutual agency, to bind the
firm to contracts for the purchase of merchandise.
b. A public accounting firm is not in the merchandising business.

Consequently, because the purchase of merchandise to be sold is not
within the normal scope of the business of this firm, the vendor has no
right to assume Lester is acting as the agent for the partnership. Hence,
the partnership probably will not have to pay.

Since Carley is a limited partner, she is not personally liable for any unpaid
debts of the partnership. Therefore, the partnership’s creditors cannot
pursue Carley’s personal assets.

Stolton Bright Total
Net income............................................. 52,000
Salary allowances
Stolton ................................................. $15,000
Bright ................................................... $20,000
Total salary allowances ..................... 35,000
Balance of income ................................ 17,000
Balance allocated equally
Stolton ................................................. 8,500
Bright ................................................... 8,500
Total allocated equally ....................... 17,000
Balance of income ................................ ______ ______ $ 0
Shares of the partners .......................... $23,500 $28,500
12-683
Education.
If Blake is allocated a $100,000 salary allowance and there remains $4,000

to be divided equally, giving Matthew $2,000, then this shows that the
partnership must have earned net income of $104,000.
Cash ........................................................................................... 40,000

Kwon, Capital ....................................................................... 40,000
To record admission of Kwon.
Choi, Capital .............................................................................. 10,000

Amal, Capital ............................................................................. 10,000
Stein, Capital ........................................................................ 20,000
To record admission of Stein by purchase.
12-684
Education.
1.
Field Brown Snow Total
Initial investments .............. $131,250 $165,000 $153,750 $450,000
Allocation of all losses

($450,000 - $45,000)/3 ....... (135,000) (135,000) (135,000) (405,000)
Capital balances ................. $ (3,750) $ 30,000 $ 18,750 $ 45,000
2. a)
May 31 Cash .......................................................................... 3,750
Field, Capital ....................................................... 3,750
To record payment of deficiency.
b)
May 31 Brown, Capital ..........................................................30,000
Snow, Capital ............................................................18,750
Cash .................................................................... 48,750
To distribute remaining cash.
3. a)
May 31 Brown, Capital .......................................................... 1,875
Snow, Capital ............................................................ 1,875
Field, Capital ....................................................... 3,750
To transfer deficiency to other partners.
b)
May 31 Brown, Capital ..........................................................28,125
Snow, Capital ............................................................16,875
Cash .................................................................... 45,000
To distribute remaining cash.
12-685
Education.
Total partnership return on equity = Net Income/Average equity
= $24,990 / ($150,000 + $200,000)/2
= $24,990 / $175,000 = 14.3%
Howe partner return on equity = Partner net income/Average partner equity
= $20,040 / ($100,000 + $140,000)/2
= $20,040 / $120,000 = 16.7%
Duley partner return on equity = Partner net income/Average partner equity
= $4,950 / ($50,000 + $60,000)/2
= $4,950 / $55,000 = 9.0%
12-686
Education.
EXERCISES
Exercise 12-1 (15 minutes)
Characteristic General Partnerships
1. Life Limited
2. Owners’ liability Unlimited
3. Legal status Not separate from partners
4. Tax status of income Taxed only once
5. Owners’ authority Mutual agency
6. Ease of formation Requires only an agreement
7. Transferability of ownership Difficult to transfer
8. Ability to raise large amounts of capital Low ability
12-687
Education.

a. Recommended Organization: Sharif, Henry, and Korb might first
consider organizing their business as a general partnership. However, a
problem for these new graduates is that they do not have funds and with
no past business experience will probably have trouble getting a
business loan. Therefore, instead of a partnership, a better course of
action is probably to incorporate. In this way they might be able to find
investors to contribute capital for stock. They can structure the
financing so that they remain the major stockholders in the company.
Taxation: As a corporation, any income will be subject to corporate
income tax. Any dividends paid to the stockholders will also normally
be taxed, but at a much lower level. Moreover, some lower income
taxpayers could potentially pay little or no dividend tax. Any salaries
that Sharif, Henry, and Korb pay themselves will be a tax-deductible
expense for the business.
Advantages: Several key advantages to the corporate form include its
limited liability and the potential to sell more stock if additional funds
are needed.
b. Recommended Organization: The two doctors should form a

partnership. A general partnership will have the disadvantage of
unlimited liability so they probably want to consider a limited liability
partnership. The partnership can borrow funds from the bank to obtain
the initial needed capital for the business.
Taxation: The owners will pay individual taxes on income earned by the
partnership but the partnership will not be taxed.
Advantages: The advantages of the partnership are ease of formation
and owner authority.
c. Recommended Organization: Munson should consider setting up a

limited partnership. Given his real estate expertise he can manage the
day-to-day activities of the partnership and serve as its general partner.
He can raise the necessary capital by admitting limited partners.
Taxation: All partners will pay individual taxes on income distributed to
them, but the partnership entity will not pay income tax.
Advantages: Advantages to Munson will be authority over the
partnership that he will have as general partner and the ease of raising
capital.
12-688
Education.

1.
Jan. 1 Cash .......................................................................... 17,500
Equipment ................................................................ 82,500
Note Payable ...................................................... 25,000
A. Moss, Capital ................................................. 75,000
To record initial capital investment of Moss.
2.
Jan. 1 Cash .......................................................................... 31,250
A. Barber, Capital .............................................. 31,250
To record initial capital investment of Barber.

Kramer Knox Total
Plan (1) $160,000 x 1/2 ...............................................

$80,000 $80,000 $160,000
Plan (2) ($60,000/$140,000) x $160,000 .....................

$68,571 $ 68,571
($80,000/$140,000) x $160,000 .....................
______ $91,429 91,429
$68,571 $91,429 $160,000
Plan (3) Net income .................................................... $160,000

Salary allowances ........................................
$50,000 $40,000 90,000
Interest allowances
($60,000 x 10%)...........................................
6,000 6,000
($80,000 x 10%)........................................... 8,000 8,000
Total salary and interest .............................. 104,000
Balance of income ........................................ 56,000

($56,000)/2 .....................................................
28,000 28,000 56,000
Balance of income ......................................... . $ 0
Shares of each partner ................................
$84,000 $76,000
12-689
Education.
Kramer Knox Total
1. Net income.................................................... $ 98,800

$50,000 $ 40,000 90,000
Interest allowances
($60,000 x 10%) ..........................................
6,000 6,000
($80,000 x 10%) .......................................... 8,000 8,000
Total salaries and interest .......................... 104,000
Balance of income ....................................... (5,200)
Remainder equally
($5,200)/2.......................................................
(2,600) (2,600) (5,200)
Balance of income .......................................
_______ _______ $ 0
Shares each partner ....................................
$53,400 $ 45,400
2. Net income.................................................... $ (16,800)

$50,000 $ 40,000 90,000
Interest allowances
($60,000 x 10%) ..........................................
6,000 6,000
($80,000 x 10%) .......................................... 8,000 8,000
Total salaries and interest .......................... 104,000
Balance of income ....................................... (120,800)
Remainder equally
$(120,800)/2...................................................
(60,400) (60,400) 120,800
Balance of income .......................................
_______ _______ $ 0
Shares of each partner ................................
$ (4,400) $(12,400)
12-690
Education.

1a. 2015
Mar. 1 Cash .......................................................................... 82,500
Land .......................................................................... 60,000
Building .................................................................... 100,000
Long-Term Note Payable .................................. 92,500
Eckert, Capital .................................................... 82,500
Kelley, Capital .................................................... 67,500
To record initial capital investments.
1b. 2015
Oct. 20 Eckert, Withdrawals ................................................. 34,000
Kelley, Withdrawals .................................................. 20,000
Cash ..................................................................... 54,000
To record partners’ withdrawals.
1c. 2015
Dec. 31 Eckert, Capital .......................................................... 34,000
Kelley, Capital ........................................................... 20,000
Eckert, Withdrawals ........................................... 34,000
Kelley, Withdrawals ............................................ 20,000
To close withdrawals accounts.
Dec. 31 Income Summary ..................................................... 90,000
Eckert, Capital .................................................... 58,250
Kelley, Capital ..................................................... 31,750
To close Income Summary account.*
2.
Capital account balances Eckert Kelley
Initial investment ................................$ 82,500 $ 67,500
Withdrawals ........................................ (34,000) (20,000)
Share of income* ................................ 58,250 31,750
Ending balances .................................$106,750 $ 79,250
*Supporting calculations Eckert Kelley Total

Net income ................................................................. $90,000
Salary allowance
Eckert .........................................................................
$25,000
Total salary allowance ............................................... 25,000
Balance of income ..................................................... 65,000
Interest allowances
Eckert (10% on $82,500) ..........................................
8,250
Kelley (10% on $67,500) ...........................................$ 6,750
Total interest allowances........................................... 15,000
Balance of income ..................................................... 50,000
Eckert ........................................................................
25,000
Kelley ........................................................................25,000
Total allocated equally ............................................... 50,000
_______
Balance of income ....................................................... _______ $ 0
Shares of the partners .................................................
$58,250 $31,750
12-691
Education.
Sept. 30 Mandy, Capital ..........................................................

100,000
Brittney, Capital .................................................. 100,000
To record admission of Brittney.
1.
Nov. 1 Cash ...........................................................................90,000
Madison, Capital ................................................. 90,000
To record admission of Madison
[($510,000 + $90,000) x 15%].
2.
Nov. 1 Cash ..........................................................................
120,000
Madison, Capital................................................. 94,500
Main, Capital ....................................................... 20,400
Frist, Capital ....................................................... 5,100
To record admission of Madison.
Supporting computations
$510,000 + $120,000 = $630,000
$630,000 x 15% = $94,500
$120,000 - $94,500 = $25,500
$25,500 x 80% = $20,400
$25,500 x 20% = $5,100
3.
Nov. 1 Cash ..........................................................................80,000
Main, Capital ............................................................. 6,800
Frist, Capital ............................................................. 1,700
Madison, Capital................................................. 88,500
To record admission of Madison.
Supporting computations
$510,000 + $80,000 = $590,000
$590,000 x 15% = $88,500
$80,000 - $88,500 = $(8,500)
$(8,500) x 80% = $(6,800)
$(8,500) x 20% = $(1,700)
12-692
Education.
1.
Jan. 31 Tulip, Capital .............................................................60,000
Cash .................................................................... 60,000
To record retirement of Tulip.
2.
Hunter, Capital* ........................................................12,500
Folgers, Capital** ..................................................... 7,500
Cash .................................................................... 80,000
* (5/8 x $20,000)
**(3/8 x $20,000)
3.
Hunter, Capital* .................................................. 18,750
Folgers, Capital** ............................................... 11,250
Cash .................................................................... 30,000
* (5/8 x $30,000)
**(3/8 x $30,000)
12-693
Education.
a. Loss from selling assets
Total book value of assets ............................................. $126,000

Total liabilities (before liquidation)................................
$78,000
Total liabilities remaining after paying
(28,000)
proceeds of asset sales to creditors ..........................
Cash proceeds from sale of assets ............................... (50,000)
Loss on sale of assets* .................................................. $ 76,000
* Alternative computation
1) $28,000 = $78,000 - Cash from asset sale
(This implies $50,000 cash from asset sale)
2) Loss on sale of assets = Book value of assets - Cash received
= $126,000 - $50,000 = $76,000
b. Loss allocation
Turner Roth Lowe Total
Capital balances before
loss liquidation $ 2,500 $ 14,000 $ 31,500 $ 48,000
Allocation of loss
$76,000 x 1/10 ....................... (7,600)
$76,000 x 4/10 ....................... (30,400)
$76,000 x 5/10 ....................... ______ _______ (38,000) (76,000)
Capital balances after loss ..... $(5,100) $(16,400) $ (6,500) $(28,000)
c. Deficiency, if any, to be covered
Each partner should pay the amount of the debit (deficit) balance in his
or her own capital account to the partnership.
12-694
Education.

a. Loss from selling assets
Total book value of assets ............................................. $126,000
Total liabilities before liquidation ..................................$78,000
Total liabilities remaining after paying proceeds
of asset sales to creditors ............................................ (28,000)
Cash proceeds from sale of assets ............................... (50,000)
Loss on sale of assets .................................................... $ 76,000
b. Loss and deficit allocation

Turner Roth Lowe Total
Capital balances before loss $ 2,500 $ 14,000 $ 31,500 $ 48,000
Allocation of loss
$76,000 x 1/10 ....................... (7,600)
$76,000 x 4/10 ....................... (30,400)
$76,000 x 5/10 ....................... ______ _______ (38,000) (76,000)
Capital balances after loss ..... (5,100) (16,400) (6,500) $(28,000)
Allocation of Lowe's deficit
to Turner and Roth
$6,500 x 1/5 ........................... (1,300)
$6,500 x 4/5 ........................... ______ (5,200) 6,500 _________
Cash paid by each partner $(6,400) $(21,600) $ 0 $(28,000)
c. Deficiency, if any, to be covered

As a limited partner, Lowe has no personal liability for the $28,000
liability. Therefore, Turner and Roth must share the loss reflected in
Lowe's capital account deficit as shown above.
Rugged Sports Enterprises LP:

Return on equity: $467,681 / [($947,000 + $1,364,681)/2] = 40.5%
Hockey LP:
Partner return on equity: $22,208 / [($189,000 + $211,208)/2] = 11.1%
Football LP:
Partner return on equity: $445,473 / [($758,000 + $1,153,473)/2] = 46.6%
12-695
Education.
PROBLEM SET A
Problem 12-1A (45 minutes)
Preliminary calculations
Plan (a) & Plan (c) Percentages based on initial investments
Watts = $42,000/$105,000 = 40%
Lyon = $63,000/$105,000 = 60%
Plan (b) Percentages based on time
Watts = 0.5/1.5 = 33 1/3%
Lyon = 1.0/1.5 = 66 2/3%
Plan (c) & Plan (d) Salary allowance
Lyon= 12 x $6,000 = $72,000
Plan (d) Interest allowances
Watts = 10% x $42,000 = $ 4,200
Lyon= 10% x $63,000 = $ 6,300
Income (Loss) Year 1

Sharing Plan Calculations Watts Lyon
(a) 40% x $36,000 loss ...................................................

$(14,400)
60% x $36,000 loss ................................................... $(21,600)
(b) 33 1/3% x $36,000 loss .............................................

$(12,000)
66 2/3% x $36,000 loss ............................................. $(24,000)
(c) Salary allowance ...................................................... $ 72,000

40% x ($36,000 loss + $72,000 salary) ....................
$(43,200)
________
60% x ($36,000 loss + $72,000 salary) .................... (64,800)
Totals .........................................................................
$(43,200) $ 7,200
(d) Salary allowance ...................................................... $ 72,000

Interest allowances ..................................................
$ 4,200 6,300
50% x ($36,000 loss + $72,000
salary + $10,500 interest) .....................................
(59,250) (59,250)
Totals .........................................................................
$(55,050) $ 19,050
12-696
Education.
Problem 12-1A (Concluded)

(a) 40% x $90,000 income .............................................
$36,000
60% x $90,000 income ............................................. $54,000
(b) 33 1/3% x $90,000 income .......................................

$30,000
66 2/3% x $90,000 income ....................................... $60,000
(c) Salary allowance ...................................................... $72,000

40% x ($90,000 income - $72,000 salary) .................. $ 7,200
60% x ($90,000 income - $72,000 salary) .................. _______ 10,800
Totals .........................................................................
$ 7,200 $82,800
(d) Salary allowance ...................................................... $72,000

Interest allowances .................................................. $ 4,200 6,300
50% x ($90,000 income - $72,000
salary - $10,500 interest) ...................................... 3,750 3,750
Totals .........................................................................
$ 7,950 $82,050

(a) 40% x $150,000 income ...........................................
$60,000
60% x $150,000 income ........................................... $ 90,000
(b) 33 1/3% x $150,000 income .....................................

$50,000
66 2/3% x $150,000 income ..................................... $100,000

40% x ($150,000 income - $72,000 salary) ............. $31,200
60% x ($150,000 income - $72,000 salary) ............. _______ 46,800
Totals .........................................................................
$31,200 $118,800

Interest allowances .................................................. $ 4,200 6,300
50% x ($150,000 income - $72,000
salary - $10,500 interest) ......................................33,750 33,750
Totals .........................................................................
$37,950 $112,050
12-697
Education.

1.
Dec. 31 Income Summary .....................................................249,000
Kara Ries, Capital .............................................. 83,000
Tammy Bax, Capital .......................................... 83,000
Joe Thomas, Capital .......................................... 83,000
To close Income Summary.
2.
To close Income Summary*.
*Supporting computations
($80,000/$320,000) x $249,000 = $62,250
($112,000/$320,000) x $249,000 = $87,150
($128,000/$320,000) x $249,000 = $99,600
3.
To close Income Summary*.
*Supporting calculations Ries Bax Thomas Total
Net income ................................................ $249,000
Salary allowances
Ries.........................................................
$66,000
Bax.......................................................... $56,000
Thomas .................................................. $80,000
Total salaries ............................................ 202,000
Balance after salary allowances .............. 47,000
Interest allowances
Ries (10% on $80,000) ........................... 8,000
Bax (10% on $112,000) .......................... 11,200
Thomas (10% on $128,000) ................... 12,800
Total interest ............................................. 32,000
Bal. after interest and salaries ................. 15,000
Balance allocated equally ........................ 5,000 5,000 5,000
Total allocated equally ............................. 15,000
Balance of income .................................... ______ ______ ______ $ 0
Shares of the partners.............................. $79,000 $72,200 $97,800
12-698
Education.
Part 1
Income (Loss)
Sharing Plan Calculations Bill Bruce Barb Total
(a) $450,000/3 .........................................................................

$150,000 $150,000 $150,000 $450,000
(b) $450,000 x ($67,500/$750,000) ............................................

40,500
$450,000 x ($262,500/$750,000) ..........................................
157,500
$450,000 x ($420,000/$750,000) ..........................................
_______ _______ 252,000
Total allocated ..................................................................
$ 40,500 $157,500 $252,000 $450,000
(c) Net income ........................................................................ $450,000

Salary allowances ............................................................
$ 80,000 $ 60,000 $ 90,000 (230,000)
Balance of income ........................................................... 220,000
Interest allowances
10% x $67,500 ................................................................
6,750
10% x $262,500 ..............................................................
26,250
10% x $420,000 .............................................................. 42,000
Total interest ..................................................................... (75,000)
Bal. of income................................................................... 145,000
Balance allocated ................................................
29,000 equally 58,000 58,000 (145,000)*
Balance of income ........................................................... $ 0
Shares of partners .............................................
$115,750 partners $144,250 $190,000
12-699
Education.

Part 2
BBB PARTNERSHIP
Statement of Partners' Equity
For Year Ended December 31
Bill Bruce Barb Total
Beginning capital balances ..............
$ 0 $ 0 $ 0 $ 0
Plus
Investments by owners ..................67,500 262,500 420,000 750,000
Net income
Salary allowances ..........................
80,000 60,000 90,000
Interest allowances .......................
6,750 26,250 42,000
Balance allocated 20%:40%:40%* .........
(19,200) (38,400) (38,400)
Total net income ............................
67,550 47,850 93,600 209,000
Total ....................................................
135,050 310,350 513,600 959,000
Less partners' withdrawals .............

(34,000) (48,000) (64,000) (146,000)
Ending capital balances ...................
$101,050 $262,350 $449,600 $813,000
*[$209,000 – ($80,000 + $60,000 + $90,000) – ($6,750 + $26,250 + $42,000)]; then allocated 20%:40%:40%.
Part 3
Dec. 31 Income Summary .....................................................

209,000
Bill Beck, Capital ................................................ 67,550
Bruce Beck, Capital ............................................ 47,850
Barb Beck, Capital.............................................. 93,600
Dec. 31 Bill Beck, Capital ......................................................

34,000
Bruce Beck, Capital .................................................. 48,000
Barb Beck, Capital ....................................................64,000
Bill Beck, Withdrawals ....................................... 34,000
Bruce Beck, Withdrawals .................................. 48,000
Barb Beck, Withdrawals .................................... 64,000
12-700
Education.

Part 1
a)
Feb. 1 Benson, Capital ........................................................ 138,000
North, Capital ..................................................... 138,000
To record admission of North.
b)
Schmidt, Capital ................................................. 138,000
To record admission of Schmidt.
c)
Cash .................................................................... 138,000
To record withdrawal of Benson with no bonus.
d)
Meir, Capital* ............................................................ 28,500
Lau, Capital** ............................................................ 47,500
Cash .................................................................... 214,000
To record withdrawal of Benson with bonus.
* ($214,000 - $138,000) x 3/8
**($214,000 - $138,000) x 5/8
e)
Accumulated Depreciation—Equipment ............... 23,200
Meir, Capital* ...................................................... 22,950
Lau, Capital** ...................................................... 38,250
Equipment .......................................................... 70,000
Cash .................................................................... 30,000
To record withdrawal of Benson with bonus to
old partners.
* [$138,000 - ($70,000 - $23,200 + $30,000)] x 3/8.
**[$138,000 - ($70,000 - $23,200 + $30,000)] x 5/8.
12-701
Education.

Part 2
a)
Feb. 1 Cash .......................................................................... 200,000
Rhodes, Capital* ................................................ 200,000
To record admission of Rhodes.
*Supporting calculations
$168,000 + $138,000 + $294,000 = $600,000
($600,000 + $200,000) x 25% = $200,000
Thus, no bonus is received or granted.
b)
Feb. 1 Cash .......................................................................... 145,000
Meir, Capital ($41,250* x 3/10) ................................. 12,375
Benson, Capital ($41,250* x 2/10) ........................... 8,250
Lau, Capital ($41,250* x 5/10) .................................. 20,625
Rhodes, Capital .................................................. 186,250
To record Rhode’s admission and bonus.
* Supporting calculations
($600,000 + $145,000) x 25% = $186,250
$145,000 - $186,250 = $(41,250)
Thus, the new partner receives a bonus.
c)
Feb. 1 Cash .......................................................................... 262,000
Meir, Capital ($46,500* x 3/10) ........................... 13,950
Benson, Capital ($46,500* x 2/10) ..................... 9,300
Lau, Capital ($46,500* x 5/10) ............................ 23,250
Rhodes, Capital .................................................. 215,500
To record admission of Rhodes and bonus to old partners.
($600,000 + $262,000) x 25% = $215,500
$262,000 - $215,500 = $46,500
Thus, the old partners receive a bonus.
12-702
Education.

Note: All entries in this problem are dated May 31.
1.
(a) Cash ..........................................................................
600,000
Inventory ............................................................. 537,200
Gain on Sale of Inventory ................................. 62,800
(b) Gain on Sale of Inventory .......................................62,800

Kendra, Capital ($62,800 x 3/6) ......................... 31,400
Cogley, Capital ($62,800 x 2/6) ......................... 20,933
Mei, Capital ($62,800 x 1/6) ............................... 10,467
(c) Accounts Payable .................................................... 245,500

Cash .................................................................... 245,500
(d) Kendra, Capital ($93,000+ $31,400) ............................ 124,400

Cogley, Capital ($212,500 + $20,933) ......................... 233,433
Mei, Capital ($167,000 + $10,467) ........................... 177,467
Cash* ................................................................... 535,300
* $180,800 + $600,000 - $245,500
2.
(a) Cash ..........................................................................
500,000
Loss on Sale of Inventory .......................................37,200
Inventory ............................................................. 537,200
(b) Kendra, Capital ($37,200 x 3/6) ...............................18,600

Cogley, Capital ($37,200 x 2/6) ...............................12,400
Mei, Capital ($37,200 x 1/6) ..................................... 6,200
Loss on Sale of Inventory ................................. 37,200

Cash .................................................................... 245,500
(d) Kendra, Capital ($93,000 - $18,600) ........................74,400

Cogley, Capital ($212,500 - $12,400) ...................... 200,100
Mei, Capital ($167,000 - $6,200) .............................. 160,800
Cash* ................................................................... 435,300
* $180,800 + $500,000 - $245,500
12-703
Education.

3.
(a) Cash .......................................................................... 320,000
Loss on Sale of Inventory ....................................... 217,200
Inventory ............................................................. 537,200
(b) Kendra, Capital ($217,200 x 3/6) ............................. 108,600

Cogley, Capital ($217,200 x 2/6) ............................. 72,400
Mei, Capital ($217,200 x 1/6) ................................... 36,200
Cash .......................................................................... 15,600

Kendra, Capital ($93,000 - $108,600) ................ 15,600

Cash .................................................................... 245,500
(d) Cogley, Capital ($212,500 - $72,400) ...................... 140,100

Mei, Capital ($167,000 - $36,200) ............................ 130,800
Cash* ................................................................... 270,900
*(180,800 + 320,000+15,600-245,500)
4.
(a) Cash .......................................................................... 250,000
Loss on Sale of Inventory ....................................... 287,200
Inventory ............................................................. 537,200
(b) Kendra, Capital ($287,200 x 3/6) ............................. 143,600

Cogley, Capital ($287,200 x 2/6) ............................. 95,733
Mei, Capital ($287,200 x 1/6) ................................... 47,867
Cogley, Capital ($50,600 x 2/3) ............................... 33,733

Mei, Capital ($50,600 x 1/3) ..................................... 16,867
Kendra, Capital ($93,000 - $143,600) ................... 50,600

Cash .................................................................... 245,500
(d) Cogley, Capital*........................................................ 83,034

Mei, Capital** ............................................................ 102,266
Cash*** ................................................................ 185,300
*$212,500 - $95,733 - $33,733
**$167,000 - $47,867 - $16,867 ***$180,800 + $250,000 - $245,500
12-704
Education.
PROBLEM SET B
Problem 12-1B (45 minutes)
Preliminary calculations
Plan (a) & Plan (c) Percentages based on initial investments
Bell = $104,000/$260,000 = 40%
Green = $156,000/$260,000 = 60%
Plan (b) Percentages based on time
Bell = 0.333/1.333 = 25%
Green = 1.000/1.333 = 75%
Plan (c) & Plan (d) Salary allowance
Green = 12 x $4,000 = $48,000
Plan (d) Interest allowances
Bell = 10% x $104,000 = $10,400
Green = 10% x $156,000 = $15,600

Sharing Plan Calculations Bell Green
(a) 40% x $36,000 loss ...................................................

$(14,400)
60% x $36,000 loss ................................................... $(21,600)
(b) 25% x $36,000 loss ...................................................

$ (9,000)
75% x $36,000 loss ................................................... $(27,000)

40% x ($36,000 loss + $48,000 salary) ....................
$(33,600)
60% x ($36,000 loss + $48,000 salary) ....................
_______ (50,400)
Totals .........................................................................
$(33,600) $ (2,400)

Interest allowances ..................................................
$ 10,400 15,600
50% x ($36,000 loss + $48,000 salary
+ $26,000 interest) .......................................
(55,000) (55,000)
Totals .........................................................................
$(44,600) $ 8,600
12-705
Education.
Problem 12-1B (Concluded)

(a) 40% x $76,000 income .............................................

$30,400
60% x $76,000 income ............................................. $45,600
(b) 25% x $76,000 income .............................................

$19,000
75% x $76,000 income ............................................. $57,000
(c) Salary allowance ...................................................... $48,000

40% x ($76,000 income - $48,000 salary) ................. $11,200
60% x ($76,000 income - $48,000 salary) .................. ______ 16,800
Totals .........................................................................
$11,200 $64,800
(d) Salary allowance ...................................................... $48,000

Interest allowances .................................................. $10,400 15,600
50% x ($76,000 income - $48,000 salary
- $26,000 interest) ........................................ 1,000 1,000
Totals .........................................................................
$11,400 $64,600

(a) 40% x $188,000 income ...........................................

$75,200
60% x $188,000 income ........................................... $112,800
(b) 25% x $188,000 income ...........................................

$47,000
75% x $188,000 income ........................................... $141,000

40% x ($188,000 income - $48,000 salary) ................ $56,000
60% x ($188,000 income - $48,000 salary) ................ _______ 84,000
Totals .........................................................................
$56,000 $132,000

Interest allowances .................................................. $10,400 15,600
50% x ($188,000 income - $48,000 salary
- $26,000 interest) ......................................... 57,000 57,000
Totals .........................................................................
$67,400 $120,600
12-706
Education.
1.
Mark Albin, Capital ............................................ 90,000
Roland Peters, Capital ...................................... 90,000
Sam Ramsey, Capital ........................................ 90,000
2.
To close Income Summary.*
*Supporting computations
($164,000/$328,000) x $270,000 = $135,000
($98,400/$328,000) x $270,000 = $81,000
($65,600/$328,000) x $270,000 = $54,000
3.
To close Income Summary.*
*Supporting calculations Albin Peters Ramsey Total
Net income ................................................ $270,000
Salary allowances
Albin .......................................................
$ 96,000
Peters ..................................................... $72,000
Ramsey .................................................. $50,000
Total salaries ............................................ 218,000
Balance after salary allowances .............. 52,000
Interest allowances
Albin (10% on $164,000) ........................ 16,400
Peters (10% on $98,400) ........................ 9,840
Ramsey (10% on $65,600) ..................... 6,560
Total interest ............................................. 32,800
Bal. after interest and salaries ................. 19,200
Balance allocated equally ........................6,400 6,400 6,400
Total allocated equally ............................. 19,200
Balance of income .................................... _______ ______ ______ $ 0
Shares of the partners.............................. $118,800 $88,240 $62,960
12-707
Education.
Part 1
Income (Loss)
Sharing Plan Calculations Cook Xi Schwartz Total
(a) $240,000/3 ...................................................

$80,000 $ 80,000 $ 80,000 $240,000
(b) $240,000 x ($144,000/$480,000) ....................

$72,000
$240,000 x ($216,000/$480,000) .................... $108,000
$240,000 x ($120,000/$480,000) ....................
_______ _______ $ 60,000
Total allocated ............................................
$72,000 $108,000 $ 60,000 $240,000
(c) Net income .................................................. $240,000

Salary allowances ......................................
$40,000 $ 30,000 $ 80,000 (150,000)
Balance of income...................................... 90,000
Interest allowances
12% x $144,000 ........................................
17,280
12% x $216,000 ........................................ 25,920
12% x $120,000 ........................................ 14,400
Total interest ............................................... (57,600)
Balance of income...................................... 32,400
Balance allocated equally..........................
10,800 10,800 10,800 (32,400)
Balance of income......................................
______ _______ _______ $ 0
Shares of partners .....................................
$68,080 $ 66,720 $105,200
12-708
Education.
Part 2
CXS PARTNERSHIP
Statement of Partners’ Equity
For Year Ended December 31
Cook Xi Schwart Total
z
Beginning capital balances .................
$ 0 $ 0 $ 0 $ 0
Plus
Investments by owners .......................
144,000 216,000 120,000 480,000
Net income
Salary allowances ................................
40,000 30,000 80,000
Interest allowances ..............................
17,280 25,920 14,400
Balance allocated equally* ..................
(40,000) (40,000) (40,000)
Total net income ..................................
17,280 15,920 54,400 87,600
Total ......................................................
161,280 231,920 174,400 567,600
Less partner withdrawals ....................

(18,000) (38,000) (24,000) (80,000)
Ending capital balance ........................
$143,280 $193,920 $150,400 $487,600
* [$87,600 – ($40,000 + $30,000 + $80,000) – ($17,280 + $25,920 + $14,400)] /3
Part 3
Dec. 31 Income Summary ..................................................... 87,600
Cook, Capital ...................................................... 17,280
Xi, Capital ........................................................... 15,920
Schwartz, Capital ............................................... 54,400
Dec. 31 Cook, Capital ............................................................ 18,000

Xi, Capital ................................................................. 38,000
Schwartz, Capital ..................................................... 24,000
Cook, Withdrawals ............................................ 18,000
Xi, Withdrawals .................................................. 38,000
Schwartz, Withdrawals ...................................... 24,000
12-709
Education.

Part 1
a)
Apr. 30 Gibbs, Capital ........................................................... 606,000
Brady, Capital ..................................................... 606,000
To record admission of Brady.
b)
Cannon, Capital................................................... 606,000
To record admission of Cannon.
c)
Cash .................................................................... 606,000
To record withdrawal of Gibbs with no bonus.
d)
Cook, Capital* ......................................................... 51,200
Chan, Capital** ................................................... 204,800
Cash .................................................................... 350,000
To record Gibbs’s withdrawal and the
bonus to old partners.
* ($606,000 - $350,000) x 1/5
**($606,000- $350,000) x 4/5
e)
Accum. Deprec.—Manufacturing Equipment........ 336,000
Cook, Capital*..................................................... 40,800
Chan, Capital** ................................................... 163,200
Manufacturing Equipment ................................ 538,000
Cash .................................................................... 200,000
To record withdrawal of Gibbs with
bonus to old partners.
* [$606,000 - ($538,000 - $336,000 + $200,000)] x 1/5
**[$606,000 - ($538,000 - $336,000 + $200,000)] x 4/5
12-710
Education.

Part 2
a)
Apr. 30 Cash .......................................................................... 300,000
Chip, Capital*...................................................... 300,000
To record admission of Chip.
$606,000 + $148,000 + $446,000 = $1,200,000
($1,200,000 + $300,000) x 20% = $300,000
Thus, no bonus is received or granted.
b)
Apr. 30 Cash .......................................................................... 196,000
Gibbs, Capital ($83,200* x 5/10) ................................ 41,600
Cook, Capital ($83,200* x 1/10) ................................. 8,320
Chan, Capital ($83,200* x 4/10) ................................. 33,280
Chip, Capital ....................................................... 279,200
To record Chip’s admission and bonus.
($1,200,000 + $196,000) x 20% = $279,200
$196,000 - $279,200 = $(83,200)
Thus, the new partner receives a bonus.
c)
Apr. 30 Cash .......................................................................... 426,000
Gibbs, Capital ($100,800* x 5/10) ......................... 50,400
Cook, Capital ($100,800* x 1/10) .......................... 10,080
Chan, Capital ($100,800* x 4/10) .......................... 40,320
Chip, Capital ........................................................ 325,200
To record admission of Chip and bonus
to old partners.
($1,200,000 + $426,000) x 20% = $325,200
$426,000 - $325,200 = $100,800
Thus, the old partners receive a bonus.
12-711
Education.

Note: All entries in this problem are dated Jan. 18.
1.
(a) Cash ..........................................................................
650,000
Equipment ........................................................... 617,200
Gain on Sale of Equipment ................................ 32,800
(b) Gain on Sale of Equipment .....................................32,800

Lasure, Capital ($32,800 x 2/5) ........................... 13,120
Ramirez, Capital ($32,800 x 1/5) ........................ 6,560
Toney, Capital ($32,800 x 2/5) ............................ 13,120

Cash ..................................................................... 342,600
(d) Lasure, Capital ($300,400 + $13,120) ..................... 313,520

Ramirez, Capital ($195,800 + $6,560) ..................... 202,360
Toney, Capital ($127,000 + $13,120) ....................... 140,120
Cash* .................................................................... 656,000
* $348,600 + $650,000 - $342,600
2.
(a) Cash ..........................................................................
530,000
Loss on Sale of Equipment .....................................87,200
Equipment ........................................................... 617,200
(b) Lasure, Capital ($87,200 x 2/5) ................................34,880

Ramirez, Capital ($87,200 x 1/5) .............................17,440
Toney, Capital ($87,200 x 2/5) .................................34,880
Loss on Sale of Equipment ................................ 87,200

Cash ..................................................................... 342,600
(d) Lasure, Capital ($300,400 - $34,880) ...................... 265,520

Ramirez, Capital ($195,800 - $17,440) .................... 178,360
Toney, Capital ($127,000 - $34,880) ........................92,120
Cash* .................................................................... 536,000
* $348,600 + $530,000 - $342,600
12-712
Education.

3.
(a) Cash ..........................................................................
200,000
Loss on Sale of Equipment ..................................... 417,200
Equipment .......................................................... 617,200
(b) Lasure, Capital ($417,200 x 2/5) ..............................
166,880
Ramirez, Capital ($417,200 x 1/5) ...........................83,440
Toney, Capital ($417,200 x 2/5) ...............................
166,880
Loss on Sale of Equipment ............................... 417,200
Cash ..........................................................................39,880
Toney, Capital ($127,000 - $166,880)................ 39,880
Cash .................................................................... 342,600
(d) Lasure, Capital ($300,400 - $166,880) .................... 133,520

Ramirez, Capital ($195,800 - $83,440) .................... 112,360
Cash* ................................................................... 245,880
* $348,600 + $200,000 + $39,880 - $342,600
4.
(a) Cash ..........................................................................
150,000
Loss on Sale of Equipment ..................................... 467,200
Equipment .......................................................... 617,200
(b) Lasure, Capital ($467,200 x 2/5) ..............................

186,880
Ramirez, Capital ($467,200 x 1/5) ...........................93,440
Toney, Capital ($467,200 x 2/5) ...............................
186,880
Loss on Sale of Equipment ............................... 467,200
Lasure, Capital ($59,880 x 2/3) ................................39,920

Ramirez, Capital ($59,880 x 1/3) .............................19,960
Toney, Capital ($127,000 - $186,880)................ 59,880

Cash .................................................................... 342,600
(d) Lasure, Capital* ........................................................73,600

Ramirez, Capital** ....................................................82,400
Cash*** ................................................................ 156,000
*$300,400 - $186,880 - $39,920
**$195,800 - $93,440 - $19,960
***$348,600 + $150,000 - $342,600
12-713
Education.
Serial Problem — SP 12
1. The owner should consider several factors:

a. If the company continues to earn profits, at a 1:1 ownership, she will
have to share profits equally with her new partner. On the other hand,
at a 4:1 ownership, she will only have to share one-fifth of the profits
with her partner. However, if the business experiences losses, she
will be better off if the partner is admitted at the 1:1 level – as the
current owner would absorb less of the loss.
b. At the 1:1 ownership, her partner will have more of a say in how the
business is run, whereas at the 4:1 level, the new partner will have
less of a voice in the business.
c. If the partner invests in the business equal to their partnership
interest, there will be more total equity in the business if the partner
invests at the 1:1 level.
d. It would likely be easier to attract a partner if there is a lower amount
of investment required by the new partner at the 4:1 level. On the
other hand, a partner may wish to be more of an equal partner and
might wish to invest at the 1:1 level.
2a.
Jan. 1 Cash .......................................................................... 80,360
New Partner, Capital ........................................... 80,360
To admit a new partner at a 1:1 ownership interest
2b.
Jan. 1 Cash .......................................................................... 20,090
To admit a new partner at a 4:1 ownership interest
($80,360 x 1/4 = $20,090).
3.
Jan. 1 Cash .......................................................................... 20,090
To admit a new partner at a 4:1 ownership interest.
4. Total capital before admission of partner ......................... $ 80,360

Partner investment .............................................................. 20,090
Total capital after admission of partner ............................ $100,450
New partner’s equity percentage ($20,090 / $100,450) ..... 20%
12-714
Education.
Reporting in Action — BTN 12-1
1. The founders of Apple are Steve Wozniak, Steve Jobs and Ron Wayne.
Each Apple I personal computer kit was single-handedly designed and
hand-built by Steve Wozniak. The Apple I went on sale in July 1976 and
was market-priced at $666.66 ($2,763 in 2014 dollars, adjusted for
inflation).
2. At least two differences would be immediately apparent between

Apple’s corporate income statement and a partnership income
statement.
(i) First, in a general partnership, income flows through to the partners
to be reported on their individual tax returns. Therefore, the income
statement for a partnership would not show a line item for income taxes
as Apple does in Appendix A.
(ii) Second, a corporate income statement shows earnings per share
figures, whereas a partnership income statement would not report
earnings per share given that no stock is outstanding in a partnership.
(iii) Another difference is the presence of cash dividends per share on
Apple’s income statement.
3. Specifically, the balance sheet for a partnership would not have the
following accounts as reported in the Apple balance sheet reproduced
in Appendix A:
• Deferred tax assets
• Common stock
• Retained earnings
• Accumulated other comprehensive income
We would expect a separate Capital account to be reported for each
partner in the equity section of the balance sheet.
12-715
Education.
Comparative Analysis — BTN 12-2
1. Apple was organized/founded in 1976, and Google was

organized/founded in 1998 (although the research project that led to
Google started in 1996 and the domain name was registered in 1997).
2. Apple’s initial public offering occurred in 1980. Google’s initial public

offering occurred in 2004.
3. Apple and Google stock are both listed on the NASDAQ Exchange.
4. Apple’s total equity (book value) is $123,549 million at September 28,

2013; and Google’s total equity (book value) is $87,309 million at
December 31, 2013.
12-716
Education.
Ethics Challenge — BTN 12-3
1. Income allocation per original agreement
Mobey Oak Chesterfield Total

Salary allowance .............. $ 3,000 $ 3,000 $ 3,000 $ 9,000
Per patient charges ......... 4,100* 12,300** 24,600*** 41,000
Totals ................................ $ 7,100 $15,300 $27,600 $50,000
*(.10 x 41,000) **(.30 x 41,000) ***(.60 x 41,000)
2. Income allocation per Chesterfield’s proposal
Mobey Oak Chesterfield Total

Per patient charges ......... $ 5,000 $15,000 $30,000 $50,000
(.10 x 50,000) (.30 x 50,000) (.60 x 50,000)
3. The ethical concern here is that Chesterfield has proposed a change to

the partnership agreement that appears to be only self-serving. It is true
that Chesterfield is the group’s largest producer and, therefore, is
entitled to the largest income. However, Chesterfield’s proposal does
not recognize that a good portion of Chesterfield’s income is due to the
patient referrals by the other partners. If patients are not referred for
surgery, then Chesterfield’s income will assuredly decline. The original
agreement gives some credit through the salary allowance to Mobey and
Oak for the referrals.
A potentially fair compromise would be to study the referral patterns of

Mobey and Oak. Through analysis, a dollar value can be assigned to the
average amount of production generated monthly for Chesterfield
through the referrals from the other partners. Note that this controversy
is not likely to subside until facts are gathered to support the fairest
allocation of the partnership income.
12-717
Education.
Communicating in Practice — BTN 12-4
--- STUDY NOTES ---

ORGANIZATIONS WITH PARTNERSHIP CHARACTERISTICS
I. Limited Partnerships
II. Limited Liability Partnerships
III. S Corporations
IV. Limited Liability Companies
I. Limited Partnerships
• These organizations are identified in its name with the words "Limited
Partnership," or "Ltd.," or "L.P."
• A limited partnership has two classes of partners, general and limited. At
least one partner must be a general partner who assumes management
duties and unlimited liability for the debts of the partnership. The limited
partners have no personal liability beyond the amounts they invest in the
partnership.
• A limited partnership is managed by the general partner(s). Limited
partners have no active role except as specified in the partnership
agreement.
• A limited partnership agreement often specifies unique procedures for
allocating incomes and losses between general and limited partners.
• The same basic accounting procedures are used for both limited and
general partnerships.
II. Limited Liability Partnerships

• This is identified in its name with the words "Limited Liability Partnership"
or by "LLP."
• This type of partnership is designed to protect innocent partners from
malpractice or negligence claims resulting from the acts of another
partner. When a partner provides service resulting in a malpractice claim,
that partner has personal liability for the claim. The remaining partners
who were not responsible for the actions resulting in the claim are not
personally liable for it.
• Most states hold all partners personally liable for other partnership debts.
• Accounting for a limited liability partnership is the same as for a general
partnership.
12-718
Education.
Communicating in Practice (Concluded)
Continued
III. S Corporations
• Certain corporations with 100 or fewer stockholders can elect to be
treated like a partnership for income tax purposes. These corporations are
called Sub-Chapter S or simply "S" corporations. This distinguishes them
from other corporations, called Sub-Chapter C or simply "C" corporations.
• "S" corporations provide stockholders with the same limited liability
feature as "C" corporations. The advantage to an "S" corporation is it
doesn't pay income taxes. If stockholders work for an "S" corporation,
their salaries are treated as expenses of the corporation.
• The remaining income or loss of the corporation is allocated to
stockholders for inclusion on their personal tax returns. Except for "C"
corporations having to account for income tax expenses and liabilities,
the accounting procedures are the same for both "S" and "C"
corporations.
IV. Limited Liability Companies

• A new form of business organization is the limited liability company. The
names of these businesses usually include the words "Limited Liability
Company" or an abbreviation such as "LLC" or "LC."
• This form of business has certain features like a corporation and others
like a limited partnership. The owners, who are called members, are
protected with the same limited liability feature in corporations. While
limited partners cannot actively participate in the management of a limited
partnership, the members of a limited liability company can assume an
active management role.
• A limited liability company usually has a limited life.
• For income tax purposes, the IRS usually classifies a limited liability
company as a partnership.
12-719
Education.
Taking It to the Net — BTN 12-5
1. The account titles given in the equity section of Advanced BioEnergy,

LLC are:
• Members’ capital, no par value
• Accumulated deficit
2. There are 25,410,852 units and 24,714,180 units issued and outstanding
at September 30, 2013 and 2012, respectively.
3. The largest asset held by Advanced BioEnergy is ‘Investment in ABE

Fairmont’ with a value of $23,138 (in thousands).
12-720
Education.
Teamwork in Action — BTN 12-6
1.
Income (Loss)
Sharing Plan Calculations Baker Warner Rice Total
(a) $450,000/3 ........................................................

$150,000 $150,000 $150,000 $ 450,000
(b) $450,000 x ($200,000/$1,000,000) .......................

$ 90,000
$450,000 x ($300,000/$1,000,000) .......................$135,000
$450,000 x ($500,000/$1,000,000) .......................
_______ _______ $225,000
Total allocated .................................................
$ 90,000 $135,000 $225,000 $ 450,000
(c) Net income ....................................................... $ 450,000

Salary allowances............................................
$ 50,000 $ 60,000 $ 70,000 (180,000)
Balance of income ................................. 270,000
Equally($270,000/3) .............................. 90,000 90,000 90,000 (270,000)
Balance of Income ................................. $ 0
Total Allocated .......................................
$140,000 $150,000 $160,000
(d) Net Income ............................................. $ 450,000

Interest allowances:
10% x $200,000 ...................................
$ 20,000
10% x $300,000 ................................... $ 30,000
10% x $500,000 ................................... $ 50,000
Total interest .......................................... (100,000)
Balance of income ................................. 350,000
Balance allocated equally ..................... 116,666 116,667 116,667 (350,000)
Balance of income .................................
_______ _______ _______ $ 0
Shares of partners .................................
$136,666 $146,667 $166,667
2. Team members share solutions.
3. Answers will vary by team. One additional income sharing basis would
be to share income based on time worked in the partnership.
12-721
Education.
Entrepreneurial Decision — BTN 12-7
1. Daniel, Craig, and their future partners would be wise to construct an

agreement that includes the following:
a) names (reputations) and contributions
b) rights and duties
c) income and loss sharing agreement
d) withdrawal agreement
e) dispute procedures
f) admission and withdrawal of new partners
g) rights and duties in the event a partner dies.
2. The partnership form of business organization will have several

advantages for Daniel, Craig, and their partners. Three of these
include: (a) The partnership form will allow active involvement by all
partners. (b) The partnership will be relatively easy to form. (c) The
partnership itself will not pay taxes.
3. Several disadvantages exist with the partnership form of organization.

Three of these include: (a) The greatest disadvantage is that each
partner has unlimited liability for the partnership’s debts. (b) The life of
a partnership is limited and a death or termination by either partner will
end the partnership. (c) Mutual agency exists for partnerships so an act
by one partner can commit or bind the other partner.
12-722
Education.
Fundamental Accounting Principles Wild 22nd Edition Solutions Manual
Global Decision — BTN 12-8
1. Byung-Chull Lee (also referred to as Lee Byung-Chull)

organized/started the company in 1938 in Taegu, Korea.
The original name was Samsung Sanghoe, which was a small trading
company operating in groceries, noodles, flour, and dried fish.
2. In the beginning, the company focused primarily on trade export,

selling dried Korean fish, vegetables, and fruit to Manchuria and
Beijing. In little more than a decade, Samsung would have its own
flourmills and confectionery machines, its own manufacturing and
sales operations, and ultimately evolve to become the modern global
corporation.
3. Samsung groups its affiliated companies into five areas:

• Electronics
• Machinery & Heavy Industries
• Chemical Industries
• Financial Services
• Other Affiliated Companies
12-723
Education.
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Chapter 12 - Accounting for Partnerships

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a. The partnership will need to pay because it is a merchandising firm.

b. A public accounting firm is not in the merchandising business.

Quick Study 12-2 (10 minutes)

Quick Study 12-3 (15 minutes)

Quick Study 12-4 (10 minutes)

If Blake is allocated a $100,000 salary allowance and there remains $4,000

Quick Study 12-5 (10 minutes)

Cash ........................................................................................... 40,000

Quick Study 12-6 (10 minutes)

Choi, Capital .............................................................................. 10,000

Quick Study 12-7 (30 minutes)

Allocation of all losses

Capital balances ................. $ (3,750) $ 30,000 $ 18,750 $ 45,000

Quick Study 12-8 (15 minutes)

Total partnership return on equity = Net Income/Average equity

= $24,990 / ($150,000 + $200,000)/2

= $24,990 / $175,000 = 14.3%

Howe partner return on equity = Partner net income/Average partner equity

= $20,040 / ($100,000 + $140,000)/2

= $20,040 / $120,000 = 16.7%

Duley partner return on equity = Partner net income/Average partner equity

= $4,950 / ($50,000 + $60,000)/2

= $4,950 / $55,000 = 9.0%

Exercise 12-1 (15 minutes)

Characteristic General Partnerships

2. Owners’ liability Unlimited

3. Legal status Not separate from partners

4. Tax status of income Taxed only once

5. Owners’ authority Mutual agency

6. Ease of formation Requires only an agreement

7. Transferability of ownership Difficult to transfer

8. Ability to raise large amounts of capital Low ability

Exercise 12-2 (20 minutes)

b. Recommended Organization: The two doctors should form a

c. Recommended Organization: Munson should consider setting up a

Exercise 12-3 (25 minutes)

Exercise 12-4 (30 minutes)

Plan (1) $160,000 x 1/2 ...............................................

Plan (2) ($60,000/$140,000) x $160,000 .....................

Plan (3) Net income .................................................... $160,000

Balance allocated equally

Exercise 12-5 (35 minutes)

Kramer Knox Total

1. Net income.................................................... $ 98,800

2. Net income.................................................... $ (16,800)

Exercise 12-6 (25 minutes)

*Supporting calculations Eckert Kelley Total

Exercise 12-7 (10 minutes)

Sept. 30 Mandy, Capital ..........................................................

Exercise 12-8 (25 minutes)

Exercise 12-9 (15 minutes)

Exercise 12-10 (30 minutes)

a. Loss from selling assets

Total book value of assets ............................................. $126,000

c. Deficiency, if any, to be covered

Exercise 12-11 (30 minutes)

b. Loss and deficit allocation

c. Deficiency, if any, to be covered

Exercise 12-12 (20 minutes)