13.4: Exercises

Exercises 

EXERCISE 13–1 (LO2)

You are given the following data for the partnership of B. White and C. Green.

B. White and C. Green Partnership
Trial Balance
December 31, 2015
Cash	$41,000
Accounts Receivable	68,400
Merchandise Inventory	27,000
Accounts Payable		$45,800
B. White, Capital		30,000
B. White, Withdrawals	7,000
C. Green, Capital		20,000
C. Green, Withdrawals	5,000
Sales		322,000
Cost of Goods Sold	160,500
Rent Expense	36,000
Advertising Expense	27,200
Delivery Expense	9,600
Office Expense	12,800
Utilities Expense	23,300
Totals	$417,800	$417,800

Each partner contributed $10,000 cash during 2015. The partners share profits and losses equally.

Required:

1. Prepare an income statement for the year.
2. Prepare a statement of changes in equity for the year in the following format:

   Statement of Changes in Equity
   For the Year Ended December 31, 2015
   	White	Green	Total
   Opening Balance	$	$	$
   Add: Investments during 2015
   Net Income
   	$	$	$
   Deduct: Withdrawals
   Ending Balance	$	$	$

3. Prepare a balance sheet at December 31, 2015.
4. Prepare closing entries at year end.

EXERCISE 13–2 (LO1,2)

Refer to EXERCISE 13–1.

Required: Prepare the equivalent statement of changes in equity at December 31, 2015 assuming that the partnership is instead:

1. A proprietorship owned by B. White called White's (Combine C. Green balances and transactions with those of B. White.)
2. A corporation named BW and CG Ltd. with 100 common shares issued for $1 per share to each of B. White and C. Green. Assume opening retained earnings equal $29,800 and that 20,000 common shares were issued during 2015 for $20,000. Assume the net income of $52,600 is net of income tax.

EXERCISE 13–3 (LO2)

Refer to EXERCISE 13–1.

Required: Prepare the journal entry to allocate net income to each of the partners assuming the following unrelated scenarios:

1. Net income is allocated in a fixed ratio of 5:3 (White: Green).
2. Net income is allocated by first paying each partner 10% interest on opening capital balances, then allocating salaries of $30,000 for White and $10,000 for Green, then splitting the remaining unallocated net income in a fixed ratio of 3:2 (White:Green).

EXERCISE 13–4 (LO2)

Walsh and Abraham began a partnership by investing $320,000 and $400,000, respectively. They agreed to share net incomes/losses by allowing a 10% interest allocation their investments, an annual salary allocation of $75,000 to Walsh and $150,000 to Abraham, and the balance 1:3.

Required: Prepare the journal entry to allocate net income to each of the partners assuming the following unrelated scenarios:

1. Net income for the first year was $210,000.
2. A net loss for the first year was realized in the amount of $95,000.

EXERCISE 13–5 (LO1)

You are given the following data for the proprietorship of R. Black.

R. Black Proprietorship
Trial Balance
December 31, 2018
	Debit	Credit
Cash	$10,000
Accounts receivable	20,000
Merchandise inventory	30,000
Accounts payable		$25,000
R. Black, capital		5,000
R. Black, withdrawals	7,000
Sales		166,000
Cost of goods sold	100,000
Rent expense	24,000
Income taxes expense	5,000
Totals	$196,000	$196,000

Black contributed $5,000 capital during the year.

Required:

1. Prepare an income statement for the year.
2. Prepare a statement of proprietor's capital for the year in the following format:

   R. Black Proprietorship
   Statement of Proprietor's Capital
   For the Year Ended December 31, 2018
   Balance at Jan. 1, 2018		$
   Contributions
   Net income
   Withdrawals
   Balance at Dec 31, 2018		$

3. Prepare a balance sheet at December 31, 2018.
4. Prepare closing entries at year-end.

EXERCISE 13–6 (LO1)

Refer to EXERCISE 13–5. Assume that the proprietorship is instead a corporation named R. Black Ltd., with 1,000 common shares issued on January 1, 2018 for a stated value of $5 per share. Assume there are no opening retained earnings and consider withdrawals to be dividends. Assume income taxes expense applies to corporate earnings.

Required:

1. Prepare an income statement for the year ended December 31, 2018.
2. Prepare a statement of changes in equity.
3. Prepare a balance sheet at December 31, 2018.
4. Prepare closing entries at year-end.

EXERCISE 13–7 (LO2)

Assume the following information just prior to the admission of new partner I:

Assets		Liabilities
Cash	$5,000	Accounts payable		$8,000
Accounts receivable	43,000
		Partners' Capital
		G, Capital	$30,000
		H, Capital	10,000	40,000
	$48,000			$48,000

Required: Prepare journal entries to record the following unrelated scenarios:

1. New partner I purchases partners G's partnership interest for $40,000.
2. New partner I receives a cash bonus of $2,000 and a one-tenth ownership share, allocated equally from the partnership interests of G and H.
3. New partner I contributes land with a fair value of $100,000. Relative ownership interests after this transaction are:

   Partner	Ownership interest
   G	20%
   H	5%
   I	75%
   	100%

EXERCISE 13–8 (LO2)

Assume the following information just prior to the withdrawal of Partner X:

Assets		Liabilities
Cash	$20,000	Accounts payable		$5,000
Inventory	50,000
		Partners' Capital
		X, Capital	$10,000
		Y, Capital	20,000
		Z, Capital	35,000	65,000
	$70,000			$70,000

Required: Prepare journal entries to record the following unrelated scenarios:

1. Partner X sells his interest to new partner T for $25,000.
2. Partner X sells his interest to partner Y for $30,000.
3. Partner X sells his interest and is paid a share of partnership net assets as follows:

   Cash	$5,000
   Inventory	5,000
   Accounts payable	(2,000)
   	$8,000

   Partner Y receives a 60% share of the partnership interest of X. Partner Z receives 40%.

EXERCISE 13–9 (LO2)

Smith, Jones, and Black are partners, sharing profits equally. They decide to admit Gray for an equal partnership (25%). The balances of the partners' capital accounts are:

Smith, capital	$50,000
Jones, capital	40,000
Black, capital	10,000
	$100,000

Required: Prepare journal entries to record admission of Gray, using the bonus method:

1. assuming the bonus is paid to the new partner; Gray invests $5,000 cash;
2. assuming the bonus is paid to existing partners; Gray invests $60,000 cash; the remaining partners benefit equally from the bonus.

Problems

PROBLEM 13–1 (LO2)

On January 1, 2015, Bog, Cog, and Fog had capital balances of $60,000, $100,000, and $20,000 respectively in their partnership. In 2015 the partnership reported net income of $40,000. None of the partners withdrew any assets in 2013. The partnership agreed to share profits and losses as follows:

1. A monthly salary allowance of $2,000, $2,500, and $4,000 to Bog, Cog and Fog respectively.
2. An annual interest allowance of 10 per cent to each partner based on her capital balance at the beginning of the year.
3. Any remaining balance to be shared in a 5:3:2 ratio (Bog:Cog:Fog).

Required:

1. Prepare a schedule to allocate the 2015 net income to partners.
2. Assume all the income statement accounts for 2015 have been closed to the income summary account. Prepare the entry to record the division of the 2015 net income.