The partnership of Angel Investor Associates began operations on January 1, 2014, with contributions from two partners as follows

The partnership of Angel Investor Associates began operations on January 1, 2014, with contributions from two partners as follows:

Dennis Overton $180,000
Ben Testerman 120,000

The following additional partner transactions took place during the year:

1. In early January, Randy Campbell is admitted to the partnership by contributing $75,000 cash for a 20% interest.
2. Net income of $150,000 was earned in 2014. In addition, Dennis Overton received a salary allowance of $40,000 for the year. The three partners agree to an income-sharing ratio equal to their capital balances after admitting Campbell.
3. The partners’ withdrawals are equal to half of the increase in their capital balances from salary allowance and income.

Prepare a statement of partnership equity for the year ended December 31, 2014.


Answer:































ANGEL INVESTOR ASSOCIATES
Statement of Partnership Equity
For the Year Ended December 31, 2014
Dennis
Overton,
Capital
Ben
Testerman,
Capital
Randy
Campbell,
Capital
Total
Partnership
Capital
Partnership capital,
January 1, 2014 $180,000 $120,000 $300,000
Admission of Randy Campbell — — $ 75,000 75,000
Salary allowance 40,000 40,000
Remaining income 52,800 35,200 22,000 110,000
Less: Partner withdrawals (46,400)
1 (17,600)2 (11,000)3 (75,000)
Partnership capital,
December 31, 2014 $226,400 $137,600 $ 86,000 $450,000
1 ($52,800 + $40,000) ÷ 2
2 $35,200 ÷ 2
3 $22,000 ÷ 2
Admission of Randy Campbell:
Equity of initial partners prior to admission……………………… $300,000
Contribution by Campbell…………………………………………… 75,000
Total……………………………………………………………………… $375,000
Campbell’s equity interest after admission…………………… × 20%
Campbell’s equity after admission………………………………… $ 75,000
Contribution by Campbell…………………………………………… 75,000
Bonus…………………………………………………………………… $ 0
Net income distribution:
The income-sharing ratio is equal to the proportion of the capital balances
after admitting Campbell according to the partnership agreement:
$180,000
Dennis Overton:
Ben Testerman:
Randy Campbell:
$375,000
$120,000
$375,000
$75,000
$375,000
= 48%
= 32%
= 20%
These ratios can be multiplied by the $110,000 remaining income after the
salary allowance to Overton ($150,000 – $40,000). These amounts are credited to
the respective partner capital accounts. For example, Dennis Overton: $52,800 =
$110,000 × 48%.


Withdrawals:
Half of the remaining income is distributed to the three partners. Overton need not take the salary allowance as a withdrawal but may allow it to accumulate in the member equity account. He is taking half of the allowance as a withdrawal.

The statement of members’ equity for Bonanza, LLC, is shown below.

The statement of members’ equity for Bonanza, LLC, is shown below.

















Bonanza, LLC
Statement of Members’ Equity
For the Years Ended December 31, 2014 and 2015
Idaho
Properties,
LLC,
Member
Equity
Silver
Streams,
LLC,
Member
Equity
Thomas
Dunn,
Member
Equity
Total
Members’
Equity
Members’ equity, January 1, 2014 $273,000 $307,000 $ 580,000
Net income 57,000 133,000 190,000
Members’ equity, December 31, 2014 $330,000 $440,000 $ 770,000
Dunn contribution, January 1, 2015 3,000 7,000 $220,000 230,000
Net income 62,500 137,500 50,000 250,000
Less member withdrawals (32,000) (48,000) (40,000) (120,000)
Members’ equity, December 31, 2015 $363,500 $536,500 $230,000 $1,130,000


a. What was the income-sharing ratio in 2014?
b. What was the income-sharing ratio in 2015?
c. How much cash did Thomas Dunn contribute to Bonanza, LLC, for his interest?
d. Why do the member equity accounts of Idaho Properties, LLC, and Silver Streams, LLC, have positive entries for Thomas Dunn’s contribution?
e. What percentage interest of Bonanza did Thomas Dunn acquire?
f. Why are withdrawals less than net income?


Answer:












































a. The income-sharing ratio is determined by dividing the net income
for each member by the total net income. Thus, in 2014, the incomesharing
ratio is as follows:
$57,000
Idaho Properties, LLC: = 30%
$190,000
$133,000
Silver Streams, LLC: = 70%
$190,000
Or a 3:7 ratio
b. Following the same procedure as in (a):
$62,500
Idaho Properties, LLC: = 25%
$250,000
$137,500
Silver Streams, LLC: = 55%
$250,000
$50,000
Thomas Dunn: = 20%
$250,000
c. Thomas Dunn provided a $230,000 cash contribution to the business.
The amount credited to his member equity account is this amount
less a $10,000 bonus paid to the other two members, or $220,000.
d. The positive entries to Idaho Properties and Silver Streams are the
result of a bonus paid by Thomas Dunn.
e. Thomas Dunn acquired a 22% interest in the business on January 1,
2015, computed as follows:
Thomas Dunn, member equity…………………………… $ 220,000
Idaho Properties, LLC, member equity………………… 333,000
Silver Streams, LLC, member equity…………………… 447,000
Total…………………………………………………………… $1,000,000
Thomas’ ownership interest after admission
($220,000 ÷ $1,000,000)………………………………… 22%
f. Withdrawals need not be the same as the income credited to the members’ equity accounts. Withdrawals will be less than the amounts credited when the members wish to retain capital in the business to support business growth or otherwise strengthen the business.

Manley and Singh are partners, sharing gains and losses equally. They decide to terminate their partnership. Prior to realization, their capital balances

Manley and Singh are partners, sharing gains and losses equally. They decide to terminate their partnership. Prior to realization, their capital balances are $20,000 and $15,000, respectively. After all noncash assets are sold and all liabilities are paid, there is a cash balance of $19,000.

a. What is the amount of a gain or loss on realization?
b. How should the gain or loss be divided between Manley and Singh?
c. How should the cash be divided between Manley and Singh?


Answer:














a. Cash balance………………………………………………… $19,000
Sum of capital accounts………………………………… 35,000
Loss on realization………………………………………… $16,000
Manley Singh
Capital balances before realization…………………… $20,000 $15,000
b. Division of loss on realization*…………………………… 8,000 8,000
Balances…………………………………………………… $12,000 $ 7,000
c. Cash distributed to partners……………………………… 12,000 7,000
Final balances……………………………………………… $ 0 $ 0
* $16,000 ÷ 2

Lewis, Zapata, and Fowler share equally in net income and net losses. After the partnership sells all assets for cash, divides the losses on realization

Lewis, Zapata, and Fowler share equally in net income and net losses. After the partnership sells all assets for cash, divides the losses on realization, and pays the liabilities, the balances in the capital accounts are as follows: Lewis, $73,500 Cr.; Zapata, $41,000 Cr.; Fowler, $17,000 Dr.

a. What term is applied to the debit balance in Fowler’s capital account?
b. What is the amount of cash on hand?
c. Journalize the transaction that must take place for Lewis and Zapata to receive cash in the liquidation process equal to their capital account balances.


Answer:













a. Deficiency
b. $97,500 ($73,500 + $41,000 – $17,000)
c. Cash 17,000
Fowler, Capital 17,000

Support for entry: Lewis Zapata Fowler
Capital balances after realization……… $73,500 $41,000 $(17,000)
Receipt of partner deficiency…………… 17,000
Capital balances after eliminating
deficiency…………………………………… $73,500 $41,000 $ 0

David Oliver and Umar Ansari, with capital balances of $28,000 and $35,000, respectively, decide to liquidate their partnership

David Oliver and Umar Ansari, with capital balances of $28,000 and $35,000, respectively, decide to liquidate their partnership. After selling the noncash assets and paying the liabilities, there is $67,000 of cash remaining. If the partners share income and losses equally, how should the cash be distributed?


Answer:











Oliver Ansari Total
Capital balances before realization………… $28,000 $35,000 $63,000
Division of gain on realization
[($67,000 – $63,000) ÷ 2]……………………… 2,000 2,000
Capital balances after realization………… $30,000 $37,000
Cash distributed to partners………………… 30,000 37,000
Final balances………………………………… $ 0 $ 0

Bray, Lincoln, and Mapes arranged to import and sell orchid corsages for a university dance. They agreed to share equally the net income or net loss

Bray, Lincoln, and Mapes arranged to import and sell orchid corsages for a university dance. They agreed to share equally the net income or net loss of the venture. Bray and Lincoln advanced $225 and $300 of their own respective funds to pay for advertising and other expenses. After collecting for all sales and paying creditors, the partnership has $1,500 in cash.

a. How should the money be distributed?
b. Assuming that the partnership has only $300 instead of $1,500, do any of the three partners have a capital deficiency? If so, how much?


Answer:






















a. Cash should be distributed as indicated in the following tabulation:
Bray Lincoln Mapes Total
Capital invested………
Net income……………
$225
+325
$300
+325
$ —
+325
$ 525
+ 975*
Capital balances and
cash distribution…… $550 $625 $325 $1,500
* $1,500 – $225 – $300
b. Mapes has a capital deficiency of $75, as indicated in the following
tabulation:
Bray Lincoln Mapes Total
Capital invested…… $225 $300 $— $525
Net loss………………… – 75 – 75 –75 –225*
Capital balances…… $150 $225 $(75) Dr.
* $300 – $525

After closing the accounts on July 1, prior to liquidating the partnership, the capital account balances of Gold, Porter, and Sims are $55,000

After closing the accounts on July 1, prior to liquidating the partnership, the capital account balances of Gold, Porter, and Sims are $55,000, $45,000, and $20,000, respectively. Cash, noncash assets, and liabilities total $56,000, $96,000, and $32,000, respectively. Between July 1 and July 29, the noncash assets are sold for $90,000, the liabilities are paid, and the remaining cash is distributed to the partners. The partners share net income and loss in the ratio of 3:2:1. Prepare a statement of partnership liquidation for the period July 1–29, 2014.


Answer:












GOLD, PORTER, AND SIMS
Statement of Partnership Liquidation
For the Period Ending July 1–29, 2014
Noncash Gold Porter Sims
Cash + Assets = Liabilities + (3/6) + (2/6) + (1/6)
Balances before realization $ 56,000 $ 96,000 $ 32,000 $55,000 $45,000 $20,000
Sale of assets and division of loss +90,000 –96,000 — –3,000 –2,000 –1,000
Balances after realization $146,000 $ 0 $ 32,000 $52,000 $43,000 $19,000
Payment of liabilities –32,000 — –32,000 — — —
Balances after payment of liabilities $114,000 $ 0 $ 0 $52,000 $43,000 $19,000
Cash distributed to partners –114,000 — — –52,000 –43,000 –19,000
Final balances $ 0 $ 0 $ 0 $ 0 $ 0 $ 0