Professional Documents
Culture Documents
Chapter 15
Answers to Questions
16 Parts a and b assume that the partnership assets are to be revalued upon
the admission of Bob into the partnership.
Goodwill would be recorded if identifiable assets and liabilities are equal to
their fair values and
1. $10,000 25% > $10,000 + old capital; or
2. Old capital 75% > $10,000 + old capital; or
3. An independent assessment of earning power or other factors
indicate goodwill.
Old partnership assets would be written down if
1. $10,000 25% < $10,000 + old capital; or
2. Old capital 75% < $10,000 + old capital; or
3. An independent assessment of earning power or other factors
indicate that partnership assets are overvalued.
Parts c and d assume that partnership assets are not to be revalued upon
the admission of Bob into the partnership. A bonus to the old partners would
be recorded if 25% x ($10,000 + old capital) is less than $10,000. A bonus to
13 Partnerships - Formation, Operations, and
Changes in Ownership Interests
Bob would be recorded if 25% x ($10,000 + old capital) is greater than
$10,000.
Chapter 15 14
SOLUTIONS TO EXERCISES
Solution E15-1
Cash $ 30,000
Delivery equipment 40,000
Furniture inventory 60,000
$130,000
Lamb capital $ 70,000
Carson capital 60,000
$130,000
60% to 40% to
Carson Lamb Total
Carson's appreciation ($30,000) $18,000 $12,000 $30,000
Lamb's depreciation ($10,000) (6,000) (4,000) (10,000)
12,000 8,000 20,000
Actual appreciation 30,000 (10,000) 20,000
Inequity (18,000) 18,000 0
Solution E15-2
Let B = bonus
B = 10% x ($506,000 - B)
B = $50,600 - .1B
1.1B = $50,600
B = $46,000
Solution E15-3
Solution E15-4
Melanie David
2004 income to divide
($25,000 - $4,000) $21,000
Salary to Melanie (18,000) $18,000
Remainder to divide 3,000
Divided equally (3,000) 1,500 $ 1,500
0
2003 income understatement $ 4,000
Divided in the 2003 60:40 ratio (4,000) 2,400 1,600
Income allocation 0 $21,900 $ 3,100
Chapter 15 16
Solution E15-5
a
Net income = $372,000 ending capital - $300,000 net contributed capital.
Solution E15-6
Solution E15-7
Capital balances after Ring is admitted when assets are not revalued:
Solution E15-8
Goodwill $ 90,000
Bowen capital $ 54,000
Monita capital 36,000
Solution E15-9
Cash $50,000
Goodwill 10,000
Vernon capital $60,000
Goodwill $40,000
Sprint capital $12,000
Telico capital 20,000
Univar capital 8,000
Cash $70,000
Vernon capital $70,000
Solution E15-10
Cash $120,000
Manda capital 3,600
Nimball capital 2,400
Ojas capital 4,000
Roscoe capital $130,000
To record Roscoe's admission to a 25% interest in the partnership
capital and earnings.
2 The profit and loss sharing ratios of the new partnership will depend on
the provisions of the new partnership agreement. If the old partners
wish to maintain their old partnership relationship, one possible
division would be to reduce each of the old partners ratio by 25% (in
other words, a new ratio of 27:18:30:25). However, if the issue is not
addressed in the new partnership agreement, the partners will share
profits equally, 25:25:25:25, in accordance with the Uniform Partnership
Act.
Solution E15-11
Goodwill $70,000
Nixon capital (30%) $21,000
Mann capital (30%) 21,000
Peter capital (40%) 28,000
Solution E15-13
3 Capital Accounts
K & E Partnership
Statement of Partners’ Capital
For the year ended December 31 2005
Kathy Eddie
Capital balances January 1, 2005 $496,750 $268,250
Add: Additional investments 5,000 5,000
Deduct: Withdrawals 0 0
Chapter 15 20
Deduct: Drawings 15,000 10,000
Add: Net income 13,250 16,750
Capital balances December 31 2005 $500,000 $280,000
21 Partnerships - Formation, Operations, and
Changes in Ownership Interests
Solution E15-14
Building $20,000
Goodwill 80,000
Byder capital $30,000
Cegal capital 20,000
Danner capital 40,000
Evita capital 10,000
To record revaluation of building and goodwill implied by
the excess payment to Cegal on his retirement ($20,000
20% = $100,000 revaluation).
Building $20,000
Cegal capital 50,000
Cash $70,000
To record revaluation and cash payment to Cegal on his
retirement.
Solution E15-15
1 a
2 c
Revaluation is recorded:
Goodwill (other assets) $20,000
Thomas capital (50%) $10,000
Mark capital (50%) 10,000
3 c
4 c
5 b
Solution E15-16
1 a
Capital Interest Income Interest
Tony capital $ 30,000 30% 50%
Olga capital 70,000 70% 50%
$100,000
Since capital and income interests were not aligned at the time of Shirley's
purchase, the $40,000 payment to Tony does not provide a basis for
revaluation. Thus, half of Tony's $30,000 capital balance should be
transferred to Shirley.
2 a
3 c
4 b
5 a
Bennett Carter Davis Total
Capital balances $100,000 $200,000 $200,000 $500,000
Revalue assets 20,000 30,000 50,000 100,000
Adjusted balances 120,000 230,000 250,000 600,000
Excess payment to
Carter 20/50 (4,000) 14,000 (10,000)
Ending balances $116,000 $244,000 $240,000
Chapter 15 26
1 b
2 a
3 a
Withdrawal $130,000
Less: Additional investment 25,000
Net withdrawal 105,000
Less: Net decrease in capital 60,000
Plack's share of net income $ 45,000
4 a
5 b
B = bonus
B = .25($300,000 - B)
B = $75,000 - .25B
1.25B = $75,000
B = $60,000
27 Partnerships - Formation, Operations, and
Changes in Ownership Interests
1 c
2 b
3 b
Revaluation entry:
Goodwill $20,000
Eli capital ($20,000 x 60%) $12,000
George capital ($20,000 x 30%) 6,000
Dick capital ($20,000 x 10%) 2,000
Admission of William:
Eli capital ($92,000 x 25%) $23,000
George capital ($46,000 x 25%) 11,500
Dick capital ($22,000 x 25%) 5,500
William capital $40,000
4 b
Because capital balances are not aligned with profit and loss sharing
ratios, the $88,800 capital transferred to Sidney will be charged to Newton
and Sharman by agreement.
5 d
6 a
7 b
20% 20% 60%
Williams Brown Lowe Total
Per books $ 70,000 $65,000 $150,000 $285,000
Asset revaluation a
12,000 12,000 36,000 60,000
Balance after revaluation 82,000 77,000 186,000 345,000
Goodwill recognitionb 20,000 20,000 60,000 100,000
Balance before retirement 102,000 97,000 246,000 445,000
Retirement of Williams (102,000) (102,000)
0 $97,000 $246,000 $343,000
a
Asset revaluation: $360,000 - $300,000 = $60,000
b
Goodwill: ($102,000 - $82,000)/.2 = $100,000
29 Partnerships - Formation, Operations, and
Changes in Ownership Interests
Solution E15-19
Solution E15-20
Solution E15-21
Goodwill $ 70,000
Case capital $ 21,000
Donley capital 21,000
Early capital 28,000
To record goodwill implied by the excess payment to Case on her
retirement. Goodwill is computed as the excess payment divided by
Case's profit and loss sharing ratio ($21,000/30%).
SOLUTIONS TO PROBLEMS
Solution P15-1
Preliminary computation
Beginning capital ($69,000 + $85,500 + $245,500) $400,000
Capital adjustments: Additional investment less withdrawals (4,000)
396,000
Ending capital (481,000)
Net income $ 85,000
Solution P15-2
1.
Mortin, Oscar, and Trent Partnership
Balance Sheet
at January 2, 2003
a
Trent's $215,000 1/3 = $645,000 total capitalization
$645,000 - $605,000 fv of old assets + Trent's investment = $40,000 goodwill
$40,000 goodwill is divided equally between Mortin and Oscar
b
Revaluation of assets to fair value ($170,000 divided equally between Mortin
and Oscar)
c
Trent's investment ($95,000 cash + $120,000 building) = $215,000
Chapter 15 34
Solution P15-2 (continued)
2.
Mortin, Oscar, and Trent Partnership
Balance Sheet
at January 2, 2003
a
Trent is paying a bonus to Mortin and Oscar because his investment of
$215,000 ($95,000 cash and $120,000 building) is worth more than a 1/3
interest in the book value of the combined assets ($215,000 + $220,000). The
$70,000 bonus is evenly divided between Mortin and Oscar based on their profit
sharing ratios. The journal entry to record Trent’s admission in the
partnership is:
Cash 95,000
Building 120,000
Trent Capital 145,000
Mortin Capital 35,000
Oscar Capital 35,000
b
Trent's investment ($95,000 cash + $120,000 building) = $215,000
Book value plus Trents investment is $220,000 + $215,000 = $435,000
Trent gets a 1/3 interest or $145,000.
Solution P15-3
Ashe and Barbour Partnership
Income Distribution Schedule for 2006
Solution P15-4
a
Alex: $ 60,000 x 12 months = $720,000 $ 720,000/12 = $60,000
3 Correcting entry:
Solution P15-5
Solution P15-6
Solution P15-7
Inventories $ 10,000
Plant assets-net 15,000
Note payable 10,000
Goodwill 75,000
Accounts receivable-net $ 5,000
Addie capital 63,000
Bailey capital 42,000
To revalue assets and liabilities and record goodwill on the basis
of the $150,000 paid by Cathy for a 40% interest. Total capital
of $375,000 [computed as $150,000/.4] less ($150,000 fair value of
recorded net assets plus $150,000 investment by Cathy) equals
$75,000 goodwill.
Cash $150,000
Cathy capital $150,000
To record Cathy's investment for a 40% interest in partnership
capital and profits.
Assets
Cash $165,000
Accounts receivable-net 40,000
Inventories 60,000
Plant assets-net 105,000
Goodwill 75,000
Total assets $445,000
Equities
Accounts payable $ 30,000
Note payable (15%) 40,000
Addie capital (33.3%) 127,000
Bailey capital (26.7%) 98,000
Cathy capital (40%) 150,000
Total equities $445,000
Chapter 15 42
Solution P15-8
There is no basis for revaluation because the capital balances are not
aligned with profit and loss sharing ratios. The entry to admit Darling
transfers one-half of Cabel's capital account to Darling, regardless of the
amount Darling pays Cabel:
Cash $ 75,000
Goodwill 25,000
Darling capital $100,000
Goodwill $ 20,000
Abed capital $ 5,000
Batak capital 5,000
Cabel capital 10,000
To record goodwill and adjust the partners' capital accounts:
Darling's investment $80,000/20% = $400,000 new capital
$400,000 - $380,000 old capital plus new investment = $20,000
goodwill to the old partners.
Cash $ 80,000
Darling capital $ 80,000
To admit Darling to a 20% interest in the partnership for $80,000.
4 Darling invests $90,000 for a 30% interest in the partnership and assets
are not revalued:
Cash $ 90,000
Abed capital 6,750
Batak capital 6,750
Cabel capital 13,500
Darling capital $117,000
To record Darling's $90,000 investment for a 30% interest and
allow him a bonus of $27,000 computed as follows:
($390,000 total capital x 30%) - $90,000 investment = $27,000
Chapter 15 44
Solution P15-9
2 Revaluation
Goodwill $60,480
Pat capital (40%) $24,192
Mike capital (50%) 30,240
Hay capital (10%) 6,048
To record revaluation of old partnership computed as:
New capital = $85,080 1/6 = $510,480
$510,480 - $450,000 = $60,480 undervaluation
No revaluation
Pat capital $24,000
Mike capital 36,000
Hay capital 15,000
Con $75,000
To transfer 1/6 of capital balances to Con.
45 Partnerships - Formation, Operations, and
Changes in Ownership Interests
Solution P15-10
1 Carmen pays $450,000 directly to Aida and Thais for 40% of each of their
interests and the bonus procedure is used.
2 Carmen pays $600,000 directly to Aida and Thais for 40% of each of their
interests and goodwill is recorded.
Goodwill $720,000
Aida capital $360,000
Thais capital 360,000
Goodwill = Payment to old partners $600,000/.4 - $780,000 existing
capital = $720,000
3 Carmen invests $450,000 in the partnership for her 40% interest, and
goodwill is recorded.
Cash $450,000
Goodwill 70,000
Carmen capital $520,000
Old capital $780,000/.6 = $1,300,000 new capital
New capital $1,300,000 - old capital $780,000 + new investment
$450,000 = goodwill $70,000
4 Carmen invests $600,000 in the partnership for her 40% interest, and
goodwill is recorded.
Goodwill $120,000
Aida capital $ 60,000
Thais capital 60,000
Goodwill = new investment $600,000/.4 = $1,500,000 total capital
$1,500,000 - $1,380,000 old capital and new investment = $120,000
Cash $600,000
Carmen capital $600,000
To record new partner's investment.
Chapter 15 46
Solution P15-11
Solution P15-12
Solution P15-13
Cash $55,000
Tom capital $55,000
To record Tom's $55,000 investment for a one-fourth interest in
capital and profits. Total capital = $220,000; Tom's capital is
$220,000 x 25%, or $55,000.
51 Partnerships - Formation, Operations, and
Changes in Ownership Interests
P 15-14
Killer Lassie
$60,000 x 3 months = $180,000 $75,000 x 4 months = $300,000
70,000 x 5 months = 350,000 63,000 x 6 months = 378,000
64,000 x 4 months = 256,000 57,000 x 2 months = 114,000
$786,000 $792,000
$786,000/12 months = $ 65,500 $792,000/12 months = $ 66,000
Killer Lassie
Net income to allocate $103,000
Salary allowances (42,000) $18,000 $24,000
Remainder to divide 61,000
Divided 60 - 40 (61,000) 36,600 24,400
Income allocation 0 $54,600 $48,400