Question

ACCOUNTING II     

ASSIGNMENT 3 – CHAPTER 11

PARTNERSHIPS

NAME:                                                                                                                      

Question 1 (8 Marks)

William and Christie form a partnership by investing $60,000 and $40,000 respectively. Their partnership agreement stipulates that William will receive an annual salary allowance of $6,000, and both partners will receive an interest allowance of 10% on their capital investment. Any profit remaining is to be allocated 60% to William, and 40% to Christie. Profit for their first year of operations is $40,000. Calculate the partners’ share of Net Income and Prepare the entry to close Income Summary. Show all calculations for full marks.

Question 2 (6 Marks)

Lewis and Watson formed a partnership. Lewis contributed $15,000 cash and accounts receivable worth $13,000. Watson's investment included cash, $8,000; inventory, $9,000; and supplies, $1,000. (All values are current fair market values). Prepare the journal entry to record the formation of the partnership.

Question 3 (6 Marks)

Zilky and Justin formed a partnership on December 31, 2013. Zilky contributed $50,000 cash and accounts receivable with a fair market value of $10,000. Justin's investment consisted of: cash, $5,000; inventory, $34,000; and supplies, $1,000-all at fair market values. Profit for 2014 and 2015 was $50,000 and $65,000, respectively.

Calculate the allocation of profit for 2014 and 2015, assuming profits are divided as follows:

(A) The partners have no agreement.
(B) Based on a 1:3 ratio.
(C) Based on the ratio of the partners' original investments.

Question 4 (10 Marks)

The balance sheet of the partnership of Ray, John and Tracy is presented below. They

share net income and losses equally.

                                                            RCT Partnership

                                                              Balance Sheet

                                                                 

                Cash                           $   5,000                 Accounts payable        $10,000

                Inventory                        80,000                 Ray, Capital                   20,000

                                                                                  John, Capital                  40,000

                                                               _                  Tracy, Capital                15,000

                    Total                      $   85,000                          Total                    $85,000

   Required:

   Prepare all necessary journal entries for each of the following independent situations.

1.         R, J and T agree to admit W. W purchases one-half of the equity interest of John           and pays John $20,000 cash personally.

2.         R, J and T agree to admit W to a one-half equity interest in the partnership if she invests $45,000 cash into the partnership. Refer to the original data.

3.         John wishes to retire. The partnership will pay John $30,000 for his equity.

           John really wants to retire. Refer to the original data.

Answer 1

Answer: As per the information provided in the question: I Christie | $ 4,000 William Profit Salary allowances $6,000 Inteost allowances $ 6,000 Total salary & I $12,000 interest allocation Balance of profit Balance allocated $14,400 I equally Balance of profit Nel 696,400 Shares of partners | $26,400 I Total 8 $ 40,000 $ 6,000 $10,000 $ 16,000 $ 84,000 $941000 $4,000 $9,600 / $ 13,600 $40,000 Account titles ! Debit & 1 credit & Income summary $40,000 William, Capital $ 26,400 Christie , Capital $13,600 Itte close income summary * As per Chega quidelines, we can answer only 1 question, I have answered 1, so kindly post other seperately. Please hit a positive vote, it helps me.