13.4: Exercises
- Page ID
- 98092
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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:
- Prepare an income statement for the year.
- 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 $ $ $ - Prepare a balance sheet at December 31, 2015.
- 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:
- A proprietorship owned by B. White called White's (Combine C. Green balances and transactions with those of B. White.)
- 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:
- Net income is allocated in a fixed ratio of 5:3 (White: Green).
- 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:
- Net income for the first year was $210,000.
- 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:
- Prepare an income statement for the year.
- 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 $ - Prepare a balance sheet at December 31, 2018.
- 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:
- Prepare an income statement for the year ended December 31, 2018.
- Prepare a statement of changes in equity.
- Prepare a balance sheet at December 31, 2018.
- 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:
- New partner I purchases partners G's partnership interest for $40,000.
- 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.
- 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:
- Partner X sells his interest to new partner T for $25,000.
- Partner X sells his interest to partner Y for $30,000.
- 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:
- assuming the bonus is paid to the new partner; Gray invests $5,000 cash;
- 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:
- A monthly salary allowance of $2,000, $2,500, and $4,000 to Bog, Cog and Fog respectively.
- An annual interest allowance of 10 per cent to each partner based on her capital balance at the beginning of the year.
- Any remaining balance to be shared in a 5:3:2 ratio (Bog:Cog:Fog).
Required:
- Prepare a schedule to allocate the 2015 net income to partners.
- 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.