Chapter 12 Quiz Principles of Accounting II - ACT 1020 C01 Assignment: Chapter 12 - Quiz FUNDAMENTAL ACCOUNTING PRINCIPLES 22e

Turner, Roth, and Lowe are partners who share income and loss in a 1:4:5 ratio. After lengthy disagreements among the partners and several unprofitable periods, the partners decide to liquidate the partnership. Immediately before liquidation, the partnership balance sheet shows total assets, $104,000; total liabilities, $78,000; Turner, Capital, $1,600; Roth, Capital, $11,600; and Lowe, Capital, $12,800. The cash proceeds from selling the assets were sufficient to repay all but $21,000 to the creditors.

(a)	Calculate the gain (loss) from selling the assets.

(b)	Allocate the gain (loss) to the partners. (Do not round intermediate calculations. Losses and deficits should be indicated with a minus sign.)

(c)	Determine the amount of the remaining liability to be paid by each partner. (Do not round intermediate calculations.)

(a)	Calculate the gain (loss) from selling the assets.

   

Explanation:

(a)

Loss from selling assets

  

Total book value of assets					$	104,000
Total liabilities (before liquidation)	$	78,000
Total liabilities remaining after paying
proceeds of asset sales to creditors		(21,000	)
Cash proceeds from sale of assets						(57,000	)
Loss on sale of assets*					$	47,000

  

*Alternative computation

1)  $21,000 = $78,000 – Cash from asset sale

(This implies $57,000 cash from asset sale)

2)  Loss on sale of assets = Book value of assets – Cash received

= $104,000 – $57,000 = $47,000

(b)

Loss allocation

	Turner				Roth				Lowe				Total
Capital balances before loss liquidation	$	1,600			$	11,600			$	12,800			$	26,000
Allocation of loss
$47,000 × 1 / 10		(4,700	)
$47,000 × 4 / 10						(18,800	)
$47,000 × 5 / 10										(23,500	)			(47,000	)
Capital balances after loss	$	(3,100	)		$	(7,200	)		$	(10,700	)		$	(21,000	)
On March 1, 2015, Eckert and Kelley formed a partnership. Eckert contributed $95,000 cash and Kelley contributed land valued at $76,000 and a building valued at $106,000. The partnership also assumed responsibility for Kelley’s $85,000 long-term note payable associated with the land and building. The partners agreed to share income as follows: Eckert is to receive an annual salary allowance of $30,500, both are to receive an annual interest allowance of 11% of their beginning-year capital investment, and any remaining income or loss is to be shared equally. On October 20, 2015, Eckert withdrew $29,000 cash and Kelley withdrew $22,000 cash. After the adjusting and closing entries are made to the revenue and expense accounts at December 31, 2015, the Income Summary account had a credit balance of $86,000.     1a&b. Prepare journal entries to record the partners' initial investments and their subsequent cash withdrawals. 1c. Determine the partners' shares of income, and then prepare journal entries to close Income Summary and the partners' Withdrawals accounts. (Enter all values as positive amounts.)        2.  Determine the balances of the partners' capital accounts as of December 31, 2015. Explanation: 2. Interest allowances: Eckert (11% on $95,000) = $10,450 Kelley (11% on $97,000) = $10,670 Kramer and Knox began a partnership by investing $59,000 and $51,000, respectively. The partners agreed to share net income and loss by granting annual salary allowances of $56,500 to Kramer and $46,500 to Knox, 12% interest allowances on their investments, and any remaining balance shared equally. 1. Determine the partners’ shares of Kramer and Knox given a first-year net income of $93,800. (Enter all allowances as positive values. Enter losses as negative values.)      2. Determine the partners’ shares of Kramer and Knox given a first-year net loss of $14,800. (Enter all allowances as positive values. Enter losses as negative values.) rev: 09_16_2011 Explanation: 1. Kramer: Interest allowances = ($59,000 × 12%) = $7,080 Knox: Interest allowances = ($51,000 × 12%) = $6,120 Balance allocated equally  = ($93,800 – $116,200) / 2 = $(11,200) 2. Kramer: Interest allowances = ($59,000 × 12%) = $7,080 Knox: Interest allowances = ($51,000 × 12%) = $6,120 Balance allocated equally  = [$(14,800) – $116,200] / 2 = $(65,500) [The following information applies to the questions displayed below.] Kara Ries, Tammy Bax, and Joe Thomas invested $58,000, $74,000, and $82,000, respectively, in a partnership. During its first calendar year, the firm earned $388,500. Prepare the entry to close the firm’s Income Summary account as of its December 31 year-end and to allocate the $388,500 net income to the partners under each of the following separate assumptions: Required: (1) The partners have no agreement on the method of sharing income and loss. (2) The partners agreed to share income and loss in the ratio of their beginning capital investments. (Do not round intermediate calculations. Round final answers to the nearest whole dollar.) (3) The partners agreed to share income and loss by providing annual salary allowances of $35,000 to Ries, $30,000 to Bax, and $42,000 to Thomas; granting 10% interest on the partners’ beginning capital investments; and sharing the remainder equally.