Fundamental Accounting Principles

Transcription

1 Last revised: Jan 2013 SOLUTIONS MANUAL to accompany Fundamental Accounting Principles 14th Canadian Edition by Larson/Jensen Prepared by: Tilly Jensen, Athabasca University Wendy Popowich, Northern Alberta Institute of Technology Susan Hurley, Northern Alberta Institute of Technology Ruby So Koumarelas, Northern Alberta Institute of Technology Technical checks by: Ross Meacher Betty Young, Red River College, ANSR Source Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition McGraw-Hill Ryerson Ltd. 12-1

2 Chapter 12 Partnerships Chapter Opening Critical Thinking Challenge Questions* Why would Jennifer form a partnership when her business appeared to be already doing well? - Jennifer's business needed to relocate out of her parent's garage into larger premises to accommodate increasing sales. Bringing in a partner might help to finance such growth and also spread any associated risk. Additionally, a partner might have expertise needed to sustain and/or expand the business. A partner might also be desirable to spread the workload. The Chapter 12 Critical Thinking Challenge questions are asked at the beginning of this chapter. Students are reminded at the conclusion of the chapter to refer to the Critical Thinking Challenge questions at the beginning of the chapter. The solutions to the Critical Thinking Challenge questions are available here in the Solutions Manual and accessible to students on Connect. Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition McGraw-Hill Ryerson Ltd. 12-2

3 Concept Review Questions 1. No. Partners have the right to select the people with whom they associate themselves as partners. 2. Death, bankruptcy, or the legal inability of a partner to contract ends a partnership. In addition, if a partnership is organized for the purpose of completing a specific business project, the partnership ends when the project is completed. If the business for which the partnership was organized cannot be completed but goes on indefinitely, the partnership may be dissolved at the will of any one of its partners. 3. Mutual agency means that each partner is an agent of the partnership and can commit it to contracts that are within the scope of its business. 4. Yes. Such an agreement is binding on members of the partnership. It is also binding on outsiders who know of the agreement. However, it is not binding on outsiders who do not know of the agreement. 5. Unlimited liability means that the creditors of a partnership have the right to require each partner to be personally responsible for all debts of the partnership. 6. All partners in a general partnership have unlimited liability. A limited partnership includes both general and limited partners, but the limited partners have no personal liability for partnership debts. Also, the general partners assume the management duties of the partnership. 7. George s claim is not valid unless the previously agreed upon method of sharing net incomes and losses granted George an annual salary of $25,000. Unless the partnership agreement says otherwise, partners have no claim to a salary allowance in payment for their services. 8. If partners agree on the method of sharing income, but say nothing of losses, any losses are shared in the same manner as income. 9. The allocation of net income to the partners is reported on the statement of changes in equity. 10. At all times in the accounting history of a partnership, assets must equal liabilities plus owners equity. When the assets are converted to cash, any gains or losses are allocated to the capital accounts of the partners; and when creditors claims are paid, assets and liabilities are reduced by equal amounts. Therefore, when the remaining assets are in the form of cash, the amount of cash must equal the proprietary claims of the partners. 11. No. Kay is still liable to her former partners for her share of the losses. 12. The remaining partners should share the decline in their equities in accordance with their income-and-loss-sharing ratio Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition McGraw-Hill Ryerson Ltd. 12-3

4 QUICK STUDY Quick Study 12-1 (10 minutes) The partnership will probably have to pay because it is a merchandising firm. That is, if the vendor knows nothing to the contrary, the vendor may assume that Campbell has the right, because of mutual agency, to bind the firm to contracts for the purchase of merchandise. Under these circumstances, the public accounting firm is not in the merchandising business. Because the purchase of merchandise to be sold is not within the normal scope of the business of this firm, the vendor has no right to assume Campbell is acting as the agent for the partnership. Hence, the firm probably will not have to pay. Quick Study 12-2 (10 minutes) Since Hillier is a limited partner, he is not personally liable for any debts of the partnership. Quick Study 12-3 (10 minutes) Mar. 1 Cash... 50,000 Len Peters,... 20,000 Beau Silver,... 30,000 To record initial capital investments. Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition McGraw-Hill Ryerson Ltd. 12-4

5 Quick Study 12-4 (10 minutes) a. Net incomes and losses are split equally in the absence of a partnership agreement. Therefore, $120,000/2 = $60,000 should be allocated to each partner. b. Mar. 31 Income Summary ,000 Bill Ace,... 60,000 Dennis Bud,... 60,000 To allocate net income and close the Income Summary account c. Mar. 31 Bill Ace,... 60,000 Dennis Bud,... 60,000 Income Summary ,000 To allocate net loss and close the Income Summary account Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition McGraw-Hill Ryerson Ltd. 12-5

6 Quick Study 12-5 (20 minutes) Dec. 31 Income Summary... 48,000 Lisa Montgomery,... 41,500 Joel Calmar,... 6,500 To transfer net income of $48,000 from the Income Summary account to the partners capital accounts. Calculations: Montgomery Calmar Total Net income... $48,000 Salary allowances: Montgomery... $45,000 Calmar... $10,000 Total salaries allocation... (55,000) Balance of net income over allocated... ($7,000) Balance allocated equally: Montgomery (50% $7,000)... (3,500) Calmar (50% $7,000)... (3,500) Total allocated equally... 7,000 Balance of net income... $ 0 Allocation to each partner... $41,500 $ 6,500 $48,000 Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition McGraw-Hill Ryerson Ltd. 12-6

7 Quick Study 12-6 (15 minutes) Dec. 31 Jenn Smith,... 56,000 Mike Yang,... 24,000 Income Summary... 80,000 To transfer net loss of $80,000 from the Income Summary account to the partners capital accounts. Calculations: Smith Yang Total Net loss... $(80,000) Salary allowances: Smith... $115,000 Yang... $90,000 Total salaries allocation... (205,000) Balance of net loss over allocated... ($285,000) Balance allocated 3:2 Smith (3/5 $285,000)... (171,000) Yang (2/5 $285,000)... (114,000) Total allocated 3: ,000 Balance of net loss... $ 0 Allocation to each partner... $(56,000) $(24,000) $(80,000) Quick Study 12-7 (10 minutes) Oct. 1 Cash... 30,000 Fontaine,... 30,000 To record admission of Fontaine by investment; $30,000 + $30,000 + $30,000 = $90,000 1/3 = $30,000 to Fontaine. Quick Study 12-8 (10 minutes) Mar. 12 Ramos,... 10,000 Briley,... 10,000 Fontaine,... 20,000 To record admission of Fontaine by purchase; $60,000 total equity 1/3 = $20,000 to Fontaine. Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition McGraw-Hill Ryerson Ltd. 12-7

8 Quick Study 12-9 (10 minutes) June 17 Cash... 30,000 Pollard,... 3,000 Mission,... 3,000 Bishop,... 36,000 To record Bishop s admission and bonus; $6,000* ½ = $3,000. *$60,000 + $30,000 = $90,000 total equity 40% = $36,000 Bishop equity; $36,000 $30,000 = $6,000. Quick Study (10 minutes) Apr. 21 Cash... 30,000 Wilson,... 18,000 Beacon,... 6,000 Metcalf,... 6,000 To record admission of Wilson and bonus to old partners; $12,000* ½ = $6,000. *$60,000 + $30,000 = $90,000 total equity 20% = $18,000,.equity of Wilson; $30,000 $18,000 = $12,000. Quick Study (10 minutes) Nov. 23 Stuart,... 35,000 Cash... 35,000 To record retirement of Stuart. Quick Study (10 minutes) Nov. 23 Peter,... 22,000 Cash... 15,000 Oliver,... 5,250 Wendell,... 1,750 To record retirement of Peter; $22,000 $15,000 = $7,000 3/4 = $5,250 bonus to Oliver; $7,000 1/4 = $1,750 bonus to Wendell. Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition McGraw-Hill Ryerson Ltd. 12-8

9 Quick Study (10 minutes) Mar. 15 Darlene, ,000 Linda,... 25,000 Sue,... 25,000 Cash ,000 To record retirement of Darlene; $300,000 $250,000 = $50,000 2/4 = $25,000 allocated to each remaining partner as a reduction. Quick Study (20 minutes) Apr. 1 Sam,... 87,500 Andrews,... 63,000 Mary,... 56,500 Cash ,000 To record final distribution of cash to partners. Calculations: Accum. Deprec. Sam, Andrews, Mary, Cash Equipment Account balances immediately prior to liquidation... $ 32,000 $151,000 $36,000 $ 65,000 $ 48,000 $34,000 Sale of Equipment and allocation of gain 3:2: , ,000 36, , , ,500 Balance... $ 207,000 $ 0 $ 0 $ 87,500 $ 63,000 $ 56,500 Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition McGraw-Hill Ryerson Ltd. 12-9

10 Quick Study (20 minutes) Apr. 1 Sam,... 53,750 Andrews,... 40,500 Mary,... 22,750 Cash ,000 To record final distribution of cash to partners. Calculations: Accum. Deprec. Sam, Andrews, Mary, Cash Equipment Account balances immediately prior to liquidation... $ 32,000 $151,000 $36,000 $ 65,000 $ 48,000 $34,000 Sale of Equipment and allocation of loss 3:2: , ,000 36,000 11,250 7,500 11,250 Balance... $ 117,000 $ 0 $ 0 $ 53,750 $ 40,500 $ 22,750 EXERCISES Exercise 12-1 (20 minutes) 1. Keith, Scott, and Brian might first consider organizing their business as a general partnership. However, a problem for the new graduates is that they do not have funds and with no past business experience will probably have trouble getting a business loan. Therefore, instead of a partnership, another option is to incorporate. They can find investors to contribute capital for shares. They can structure the financing so that they remain the major shareholders in the company. Several key advantages to the corporate form is that they will have limited liability and potential to sell more shares if additional funds are needed. As a corporation any profits will be subject to corporate income tax. Any dividends paid to the shareholders will also be taxed at the individual level. However, any salaries that Keith, Scott, and Brian pay themselves will be tax-deductible expenses. A possible downside however is that a bank is likely to ask for a personal guarantee and then they will actually lose the limited liability feature. 2. The two doctors should form a partnership. The partnership can borrow funds from the bank to obtain the initial needed capital for the business. The advantages of the partnership are ease of formation and owner authority. Also the owners will pay individual taxes on profits from the partnership but the partnership will not be taxed. Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition McGraw-Hill Ryerson Ltd

11 3. Matt should consider using a limited partnership. Given his real estate expertise he can manage the day to day activities of the partnership and serve as its general partner. He can raise the necessary capital by admitting limited partners. The advantages to Matt will be the authority over the partnership that he will have as general partner and the ease of raising capital. All partners will pay individual taxes on profits distributed to them but the partnership entity will not pay income tax. Exercise 12-2 (25 minutes) 1) Feb. 1 Cash... 80,000 Land ,000 Building ,000 Long-Term Notes Payable ,000 Tessa Williams,... 80,000 Audrey To, ,000 To record initial capital investments. Nov. 20 Tessa Williams, Withdrawals... 60,000 Audrey To, Withdrawals... 45,000 Cash ,000 To record partners withdrawals. Dec. 31 Income Summary ,000 Tessa Williams, ,000 Audrey To,... 44,000 To allocate income and close the Income Summary account. Dec. 31 Tessa Williams,... 60,000 Audrey To,... 45,000 Tessa Williams, Withdrawals... 60,000 Audrey To, Withdrawals... 45,000 To close withdrawals accounts. 2) account balances: Williams To Initial investment... $ 80,000 $170,000 Withdrawals... (60,000) (45,000) Share of income* ,000 44,000 Ending balances... $136,000 $169,000 *See calculations next page. Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition McGraw-Hill Ryerson Ltd

12 Exercise 12-2 (concluded) *Calculations: Williams To Total Net income... $160,000 Salary allowance: Williams... $ 90,000 Interest allowances: Williams (20% on $80,000)... 16,000 To (20% on $170,000)... $34,000 Total salaries and interest allocation... $106,000 $34,000 (140,000) Balance of income to be allocated... $ 20,000 Balance allocated equally: Williams (50% $20,000)... 10,000 To (50% $20,000)... 10,000 Total allocated equally... (20,000) Balance of income... $ -0- Shares of the partners... $116,000 $44,000 $160,000 Exercise 12-3 (30 minutes) Share to Share to Dallas Weiss Total Plan (a) $394,000 1/2... $197,000 $197,000 $394,000 Plan (b) ($115,000/$250,000) $394, $181,240 $181,240 ($135,000/$250,000) $394, $212, ,760 $181,240 $212,760 $394,000 Plan (c) Net income... $394,000 Salary allowances... $140,000 $70,000 Interest allowances: ($115,000 25%)... 28,750 ($135,000 25%)... 33,750 Total salaries and interest allocation.. $168,750 $103,750 (272,500) Balance of income... $121,500 Balance allocated equally: ($121,500 50%)... 60,750 60,750 (121,500) Balance of income... $ Shares of each partner... $229,500 $164,500 $394,000 Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition McGraw-Hill Ryerson Ltd

13 Exercise 12-4 (35 minutes) Share to Jensen Share to Stafford Total 1. Net income... $420,000 Salary allowances... $150,000 $75,000 Interest allowances: ($160,000 20%)... 32,000 ($200,000 20%)... 40,000 Total salaries and interest allocation $182,000 $115,000 (297,000) Balance of income... $ 123,000 Remainder 3:2 ratio: ($123,000 3/5; $123,000 2/5)... 73,800 49,200 (123,000) Balance of income... $ -0- Shares to each partner... $255,800 $164,200 $420,000 Share to Jensen Share to Stafford Total 2. Net loss... $ (95,000) Salary allowances... $150,000 $ 75,000 Interest allowances: ($160,000 20%)... 32,000 ($200,000 20%)... 40,000 Total salaries and interest allocation $182,000 $115,000 (297,000) Balance... of loss $(392,000) Remainder 3:2 ratio: ( $392,000 3/5; $392,000 2/5). (235,200) (156,800) 392,000 Balance of loss... $ -0- Shares to each partner $( 53,200) $(41,800) $ (95,000) Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition McGraw-Hill Ryerson Ltd

14 Exercise 12-5 (25 minutes) 1. Dec. 31 Income Summary... 30,000 Katano,... 96,750 Liam, ,750 To transfer net income of $30,000 to partners capital accounts. Calculations: Liam Katano Total Net income... $ 30,000 Salary allowances: Liam... $150,000 Interest allowances: Liam (15% $95,000)... 14,250 Katano (15% $105,000)... 15,750 Total salaries and interest allocation... $164,250 $ 15,750 (180,000) Balance of net income over allocated... $(150,000) Balance allocated 1:3: Liam (1/4 $150,000)... (37,500) Katano (3/4 $150,000)... (112,500) Total allocated 1: ,000 Balance of net income... $ 0 Allocation to each partner... $126,750 $ (96,750) $ 30, account balances: Liam Katano Initial investment... $ 95,000 $105,000 Withdrawals... (7,000) (24,000) Share of income ,750 (96,750) Ending balances... $214,750 $(15,750) Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition McGraw-Hill Ryerson Ltd

15 Exercise 12-6 (15 minutes) Debra Glen Total Net income... $116,000 4 Salary allowances: Debra... $100,000 Glen... $ 0 Total salaries allocation... (100,000) Balance of net income to be allocated... $ 16,000 3 Balance allocated equally: Debra (50% $? )... 8,000 2 Glen (50% $? )... 8,000 1 Total allocated equally... (16,000) Balance of net income... $ 0 Allocation to each partner... $108,000 5 $ 8,000 $116, If Glen s capital account was credited $8,000 and he was allocated $0 salaries, then his allocation of income is based on his 50% share of the balance remaining after salaries are allocated; $8, Since Glen s 50% share is $8,000, Debra s 50% share must be $8, If 50% of the balance remaining = $8,000, then the balance remaining to be allocated must be equal to 2 $8,000 = $16, If the balance remaining to be allocated is $16,000 and total salaries allocated is $100,000, then net income must be equal to $16,000 + $100,000 = $116, Debra s share of net income is $100,000 + $8,000 = $108,000. Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition McGraw-Hill Ryerson Ltd

16 Exercise 12-7 (30 minutes) 1. Williams Adams Total Net income... $ 378,000 Salary allowance: Williams... $ 90,000 Adams... $150,000 Total salaries allocation... (240,000) Balance of income to be allocated... $ 138,000 Balance allocated on a 3:2 ratio: Williams (3/5 $138,000)... 82,800 Adams (2/5 $138,000)... 55,200 Total allocated... ( ) Balance of income... $ -0- Shares of the partners... $172,800 $205,200 $ 378, Dec. 31 Income Summary ,000 Keith Williams, ,800 Brian Adams, ,200 To record closing of net income to capital. 3. MUSIC WORKS Statement of Changes in Equity For Year Ended December 31, Williams Adams Total, December 31, $ 28,300 $ 22,000 $ 50,300 Plus: Net income , , ,000 Total... $201,100 $227,200 $428,300 Less: Partners withdrawals.. 50,000 60, ,000, December 31,... $151,100 $167,200 $318,300 Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition McGraw-Hill Ryerson Ltd

17 Exercise 12-7 (concluded) MUSIC WORKS Balance Sheet December 31, Assets Current assets: Cash... $208,000 Office supplies... 16,000 Total current assets... $224,000 Property, plant and equipment: Equipment... $300,000 Less: Accumulated depreciation... 75, ,000 Total assets... $449,000 Liabilities Current liabilities: Accounts payable... $ 9,500 Utilities payable... 1,200 Current portion of notes payable... 40,000 Total current liabilities... $ 50,700 Long-term liabilities: Notes payable, due May, 2016 (less current 80,000 portion)... Total liabilities... $130,700 Equity Keith Williams, capital... $151,100 Brian Adams, capital ,200 Total equity ,300 Total liabilities and equity... $449,000 Analysis component The partners capital accounts might be so small relative to the amount of the withdrawals made because the balance in capital changes during each accounting period. A partner s capital account would increase when they are allocated a share of net income and would then decrease if a withdrawal was made. For example, if Partner A had a beginning balance in capital of $100 and receiving a $600 allocation of net income for the period, the capital balance would be $700. If Partner A then made a withdrawal of $500, the capital balance would decrease to $200. In this case, Partner A s capital account balance of $200 seems small relative to the $500 withdrawal made. Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition McGraw-Hill Ryerson Ltd

18 Exercise 12-8 (25 minutes) a) July 1 Cash ,000 Morris, ,000 To record admission of Morris [($760,000 + $190,000) 20%]. b) July 1 Cash ,000 Morris, ,000 Hall,... 24,000 Reynolds,... 8,000 To record admission of Morris.* *Supporting computations: $760,000 + $230,000 = $990,000 $990,000 20% = $198,000 $230,000 $198,000 = $32,000 $ 32,000 75% = $24,000 $ 32,000 25% = $8,000 c) July 1 Cash ,000 Hall,... 48,000 Reynolds,... 16,000 Morris, ,000 To record admission of Morris.* *Supporting computations: $760,000 + $110,000 = $870,000 $870,000 20% = $174,000 $ 110,000 $174,000 = $64,000 $ 64,000 75% = $48,000 $ 64,000 25% = $16,000 Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition McGraw-Hill Ryerson Ltd

19 Exercise 12-9 (20 minutes) a) b) c) Sept. 1 Cash ,000 Wil Court, ,000 To record the admission of new partner; $50,000 + $195,000 + $105,000 = $350,000 total equity; $350,000 30% = $105,000. Sept. 1 Cash ,000 Wil Court,... 70,000 Gunnar Schwiede,... 14,000 Dietar Loris,... 21,000 To record admission of new partner with bonus to old partners; $350,000 20% = $70,000 equity to Court; $105,000 $70,000 = $35,000 bonus to old partners; $35,000 2/5 = $14,000 to Schwiede; $35,000 3/5 = $21,000 to Loris. Sept. 1 Cash ,000 Gunnar Schwiede,... 28,000 Dietar Loris,... 42,000 Wil Court, ,000 To record admission of new partner with bonus to new partner; $350,000 50% = $175,000 equity to Court; $175,000 $105,000 = $70,000 bonus to Court to be allocated between old partners; $70,000 2/5 = $28,000; $70,000 3/5 = $42,000. Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition McGraw-Hill Ryerson Ltd

20 Exercise (10 minutes) Apr. 30 Prince, ,000 Queen, ,000 To record admission of Queen. Exercise (15 minutes) a) Nov. 30 Tran,... 75,000 Cash... 75,000 To record retirement of Tran. b) Nov. 30 Tran,... 75,000 Holt, (2/8 $15,000)... 3,750 Barth, (6/8 $15,000)... 11,250 Cash... 90,000 To record retirement of Tran. c) Nov. 30 Tran,... 75,000 Holt, (2/8 $7,500)... 1,875 Barth, (6/8 $7,500)... 5,625 Cash... 67,500 To record retirement of Tran. Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition McGraw-Hill Ryerson Ltd

21 Exercise (25 minutes) a) b) c) Oct. 14 Doug Morris, ,000 Accumulated Depreciation, Car... 44,000 Car... 84,000 Cash... 80,000 To record retirement of a partner; cost of $84,000 book value of $40,000 = accum. deprec. of $44,000. Oct. 14 Doug Morris, ,000 Accumulated Depreciation, Car... 44,000 Car... 84,000 Cash... 80,000 Barb Rusnak,... 20,000 Len Peters,... 20,000 To record retirement of a partner; $160,000 $120,000 = $40,000 bonus to old partners; $40,000 40/80 = 20,000 bonus allocated to each of Rusnak and Peters. Oct. 14 Doug Morris,... 60,000 Barb Rusnak,... 30,000 Len Peters,... 30,000 Accumulated Depreciation, Car... 44,000 Car... 84,000 Cash... 80,000 To record retirement of a partner; $120,000 $60,000 = $60,000 bonus to Morris; $60,000 40/80 = $30,000 allocated to each of Rusnak and Peters. Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition McGraw-Hill Ryerson Ltd

22 Exercise (20 minutes) 2015 Jan. 1 Cash... 56,000 Accumulated Depreciation, Equipment... 89,000 Loss on Sale of Equipment*... 7,000 Equipment ,000 To record sale of equipment. 1 Les Wallace, ($7,000 2/4)... 3,500 Mavis Dunn, ($7,000 1/4)... 1,750 Sig Jensen, ($7,000 1/4)... 1,750 Loss on Sale of Equipment... 7,000 To distribute loss on sale of equipment to partners. 1 Accounts Payable... 7,000 Notes Payable... 12,000 Cash... 19,000 To pay creditors. 1 Les Wallace,... 27,500 Mavis Dunn,... 12,250 Sig Jensen,... 10,250 Cash... 50,000 To distribute remaining cash to partners. Calculations: Cash Equipment Accum. Deprec., Equipment Accounts Payable Notes Payable Les Wallace, Mavis Dunn, Sig Jensen, Account balances December 31,... $ 13,000 $ 152,000 $ 89,000 $ 7,000 $ 12,000 $31,000 $14,000 $12,000 Sale of equipment for a loss of $7, , ,000 89,000 3,500 1,750 1,750 Balance... $ 69,000 $ 0 $ 0 $ 7,000 $ 12,000 $27,500 $12,250 $10,250 Payment of liabilities... 19,000 7,000 12,000 Balance... $50,000 $ 0 $ 0 $ 0 $ 0 $27,500 $12,250 $10,250 Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition McGraw-Hill Ryerson Ltd

23 Exercise (concluded) *Note Students may wish to combine the entries for the sale of the equipment and distribution of the loss on sale of equipment as follows : 2015 Jan. 1 Cash... 56,000 Accumulated Depreciation, Equipment... 89,000 Les Wallace, (7,000 2/4)... 3,500 Mavis Dunn, (7,000 1/4)... 1,750 Sig Jensen, (7,000 1/4)... 1,750 Equipment ,000 To record sale of equipment and distribution of $7,000 loss on sale of equipment to partners. Exercise (20 minutes) 2015 Jan. 1 Martha Wheaton, ,000 Sam Dun, ,000 Cash ,000 To distribute remaining cash to partners. Cash Building Accum. Deprec., Building Land Accounts Payable Martha Wheaton, Bess Jones, Sam Dun, Account balances December 31,... $ 184,000 $ 824,000 $ 480,000 $ 208,000 $128,000 $ 316,000 $(52,000) $ 344,000 Sale of land and building* , , , , , , ,000 Balance... $ 864,000 $ 0 $ 0 $ 0 $128,000 $ 380,000 $ (20,000) $ 376,000 Payment of liabilities , ,000 Balance... $ 736,000 $ 0 $ 0 $ 0 $ 0 $ 380,000 $ (20,000) $ 376,000 Payment of deficiency ,000 +$20,000 Balance... $ 756,000 $ 0 $ 0 $ 0 $ 0 $ 380,000 $ 0 $ 376,000 *$680,000 ($824,000 $480,000 + $208,000) = $128,000 gain $128,000 2/4 or 50% = $64,000 to Wheaton $128,000 1/4 or 25% = $32,000 to each of Jones and Dun Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition McGraw-Hill Ryerson Ltd

24 Exercise (20 minutes) 2015 Jan. 1 Martha Wheaton, ,667 Sam Dun, ,333 Cash ,000 To distribute remaining cash to partners. Calculations: Cash Building Accum. Deprec., Building Land Accounts Payable Martha Wheaton, Bess Jones, Sam Dun, Account balances December 31,... $ 184,000 $ 824,000 $ 480,000 $ 208,000 $ 128,000 $316,000 $(52,000) $344,000 Sale of land and building* , , , , , , ,000 Balance... $ 864,000 $ 0 $ 0 $ 0 $ 128,000 $380,000 $(20,000) $376,000 Payment of liabilities , ,000 Balance... $ 736,000 $ 0 $ 0 $ 0 $ 0 $380,000 $(20,000) $376,000 Absorption of deficiency**... 13, ,000 6,667 Balance... $ 736,000 $ 0 $ 0 $ 0 $ 0 $366,667 $ 0 $369,333 *$680,000 ($824,000 $480,000 + $208,000) = $128,000 gain; $128,000 2/4 or 50% = $64,000 to Wheaton; $128,000 1/4 or 25% = $32,000 to each of Jones and Dun. **$20,000 2/3 = $13,333 to Wheaton (based on a remaining ratio of 2:1 or 2/3); $20,000 1/3 = $6,667 to Dun (based on a remaining ratio of 2:1 or 1/3). Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition McGraw-Hill Ryerson Ltd

25 Exercise (30 minutes) 1. Whiz Bam Boom Total Initial investments... $231,200 $ 177,200 $191,600 $600,000 Allocation of all losses: ($600,000 $60,000)/3... (180,000) (180,000) (180,000) (540,000) balances... $ 51,200 $ (2,800) $ 11,600 $ 60, Dec. 31 Cash... 2,800 Bam,... 2,800 To record payment of deficiency. 31 Whiz,... 51,200 Boom,... 11,600 Cash... 62,800 To distribute remaining cash. 3. a) Dec. 31 Whiz,... 1,400 Boom,... 1,400 Bam,... 2,800 To transfer deficiency to other partners. b) Dec. 31 Whiz,... 49,800 Boom,... 10,200 Cash... 60,000 To distribute remaining cash. Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition McGraw-Hill Ryerson Ltd

26 PROBLEMS Problem 12-1A (50 minutes) a) Dec. 31 Income Summary ,000 Jenkins, ,000 Willis, ,000 Trent, ,000 To close Income Summary. b) Dec. 31 Income Summary ,000 Jenkins, ,000 Willis, ,000 Trent, ,000 To close Income Summary.* *Supporting computations: ($200,000/$1,000,000) $600,000 = $120,000 ($350,000/$1,000,000) $600,000 = $210,000 ($450,000/$1,000,000) $600,000 = $270,000 c) Dec. 31 Income Summary ,000 Jenkins, ,000 Willis, ,500 Trent, ,500 To close Income Summary.* *Supporting calculations: Jenkins Willis Trent Total Net income... $600,000 Salary allowances: Jenkins,... $110,000 Willis,... $120,000 Trent,... $ 55,000 Interest allowances: Jenkins (15% on $200,000)... 30,000 Willis (15% on $350,000)... 52,500 Trent (15% on $450,000)... 67,500 Total salaries and interest allocation... $140,000 $172,500 $122,500 (435,000) Balance of income to be allocated... $165,000 Balance allocated equally... 55,000 55,000 55,000 (165,000) Balance of income... $ 0 Shares of the partners... $195,000 $227,500 $177,500 $600,000 Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition McGraw-Hill Ryerson Ltd

27 Problem 12-2A (45 minutes) Preliminary calculations: Plan (a) & Plan (c) Percentages based on initial investments: Phillis = $160,000 / $400,000 = 40% Case = $240,000 / $400,000 = 60% Plan (b) Percentages based on time: Phillis = (1/3) / (1/3 + 1) = 25% Case = (1) / (1/3 + 1) = 75% Plan (c) & Plan (d) Salary allowance: Case = 12 $5,000 = $60,000 Plan (d) Interest allowances: Phillis = 15% $160,000 = $ 24,000 Case = 15% $240,000 = $ 36,000 Plan a. Year Calculations Share to Phillis Share to Case Total 1 Net loss... $(100,000) 40% $100,000 loss... $(40,000) 60% $100,000 loss... $(60,000) 2 Net income... $ 150,000 40% $150,000 income... $ 60,000 60% $150,000 income... $ 90,000 3 Net income... $ 250,000 40% $250,000 income... $ 100,000 60% $250,000 income... $150,000 Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition McGraw-Hill Ryerson Ltd

28 Problem 12-2A (continued) Plan b. Year Calculations Share to Phillis Share to Case Total 1 Net loss... $(100,000) 25% $100,000 loss... $(25,000) 75% $100,000 loss... $ (75,000) 2 Net income... $ 150,000 25% $150,000 income... $ 37,500 75% $150,000 income... $ 112,500 3 Net income... $ 250,000 25% $250,000 income... $ 62,500 75% $250,000 income... $187,500 Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition McGraw-Hill Ryerson Ltd

29 Problem 12-2A (continued) Plan c. Year Calculations Share to Phillis Share to Case Total 1 Net loss... $(100,000) Salary allowances... $ 60,000 Total salaries... $ -0- $ 60,000 (60,000) Balance of loss... $(160,000) Remainder 40/60 (initial investment ratio): ( $160,000 40%)... (64,000) ( $160,000 60%)... (96,000) 160,000 Balance of loss... $ -0- Shares to each partner $( 64,000) $ (36,000) $(100,000) 2 Net income... $150,000 Salary allowances... $ 60,000 Total salaries... $ -0- $ 60,000 $ (60,000) Balance of income... $ 90,000 Remainder 40/60 (initial investment ratio): ($90,000 40%)... 36,000 ($90,000 60%)... 54,000 (90,000) Balance of income... $ -0- Shares to each partner $ 36,000 $ 114,000 $150,000 3 Net income... $250,000 Salary allowances... $ 60,000 Total salaries... $ -0- $ 60,000 (60,000) Balance of income... $190,000 Remainder 40/60 (initial investment ratio): ($190,000 40%)... 76,000 ($190,000 60%) ,000 (190,000) Balance of income... $ -0- Shares to each partner $ 76,000 $ 174,000 $250,000 Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition McGraw-Hill Ryerson Ltd

30 Problem 12-2A (concluded) Plan d. Year Calculations Share to Phillis Share to Case Total 1 Net loss... $(100,000) Salary allowances... $ 60,000 Interest allowances: ($160,000 15%)... 24,000 ($240,000 15%)... 36,000 Total salaries and interest allocation $ 24,000 $ 96,000 $(120,000) Balance... of loss $(220,000) Remainder equally: ( $220,000 50%)... (110,000) (110,000) 220,000 Balance of loss... $ -0- Shares to each partner $ (86,000) $(14,000) $(100,000) 2 Net income... $ 150,000 Salary allowances... $60,000 Interest allowances: ($160,000 15%)... 24,000 ($240,000 15%)... 36,000 Total salaries and interest allocation $ 24,000 $ 96,000 (120,000) Balance... of income $ 30,000 Remainder equally: ($30,000 50%)... 15,000 15,000 (30,000) Balance of income... $ -0- Shares to each partner $ 39,000 $111,000 $ 150,000 3 Net income... $ 250,000 Salary allowances... $ 60,000 Interest allowances: ($160,000 15%)... 24,000 ($240,000 15%)... 36,000 Total salaries and interest allocation $ 24,000 $ 96,000 (120,000) Balance... of income $ 130,000 Remainder equally: (130,000 50%)... 65,000 65,000 (130,000) Balance of income... $ -0- Shares to each partner $ 89,000 $ 161,000 $ 250,000 Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition McGraw-Hill Ryerson Ltd

31 Problem 12-3A (40 minutes) Part 1 Income (Loss) Sharing Plan Calculations Conway Chan Seghal Total (a) $360,000/3... $120,000 $120,000 $120,000 $360,000 (b) $360,000 ($245,000/$700,000)... $126,000 $360,000 ($280,000/$700,000)... $144,000 $360,000 ($175,000/$700,000)... $ 90,000 Total allocated... $126,000 $144,000 $ 90,000 $360,000 (c) Net income... $360,000 Salary allowances... $110,000 $ 85,000 $ 60,000 Interest allowances: 12% $245, ,400 12% $280, ,600 12% $175, ,000 Total salaries and interest allocation... $139,400 $ 118,600 $ 81,000 (339,000) Balance of income... $21,000 Balance allocated equally... 7,000 7,000 7,000 (21,000) Balance of income... $ 0 Shares of partners... $146,400 $125,600 $ 88,000 $360,000 Part 2 CCS Consulting Statement of Changes in Equity For Year Ended December 31, Conway Chan Seghal Total, January 1... $ -0- $ -0- $ -0- $ -0- Add: Investments by partners , , , ,000 Net income , ,600 88, ,000 Total... $391,400 $405,600 $263,000 $1,060,000 Less: Partners withdrawals... 40,000 30,000 20,000 90,000, December $351,400 $375,600 $243,000 $ 970,000 Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition McGraw-Hill Ryerson Ltd

32 Problem 12-3A (concluded) Part 3 Dec. 31 Income Summary ,000 Ben Conway, ,400 Ida Chan, ,600 Clair Seghal,... 88,000 To close Income Summary. Dec. 31 Ben Conway,... 40,000 Ida Chan,... 30,000 Clair Seghal,... 20,000 Ben Conway, Withdrawals... 40,000 Ida Chan, Withdrawals... 30,000 Clair Seghal, Withdrawals... 20,000 To close withdrawals accounts. Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition McGraw-Hill Ryerson Ltd

33 Problem 12-4A (25 minutes) a) May 1 Cash , Dent, * , To record admission of Dent. *Supporting calculations: $84,000 + $69,000 + $147,000 = $300,000 ($300,000 + $100,000) 25% = $100,000 q No bonus received or paid. b) May 1 Cash... 72, Zeller, ($20,625* 3/10)... 6, Acker, ($20,625* 2/10)... 4, Benton, ($20,625* 5/10)... 10, Dent,... 93, To record Dent s admission and bonus. c) *Supporting calculations: ($300,000 + $72,500) 25% = $93,125 $93,125 $72,500 = $20,625 q Bonus allocated to new partner. May 1 Cash , Zeller, ($23,250* 3/10)... 6, Acker, ($23,250* 2/10)... 4, Benton, ($23,250* 5/10)... 11, Dent, , To record admission of Dent and bonus to old partners. *Supporting calculations: ($300,000 + $131,000) 25% = $107,750 $107,750 $131,000 = $23,250 Bonus received by old partners. Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition McGraw-Hill Ryerson Ltd

34 Problem 12-5A (40 minutes) Part 1 a. June 1 Cash ,000 Equipment ,000 Jill Bow, ,000 Aisha Amri, ,000 Notes Payable... 40,000 To record formation of partnership. b. Nov. 20 Amri, Withdrawals ,000 Cash ,000 To record withdrawal by partner. c May 31 Income Summary ,000 Jill Bow, ,200 Aisha Amri, ,800 To record closing of net income to capital. Supporting calculations: Bow Amri Total Net income... $380,000 Salary allowance: Bow... $150,000 Interest allowances: Bow (8% on $280,000)... 22,400 Amri (8% on $320,000)... $25,600 Total salaries and interest allocation... $172,400 $25,600 (198,000) Balance of income to be allocated... $ 182,000 Balance allocated 40/60: Bow (40% $182,000)... 72,800 Amri (60% $182,000) ,200 Total allocated 40/60... (182,000) Balance of income... $ -0- Shares of the partners... $245,200 $134,800 $ 380,000 Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition McGraw-Hill Ryerson Ltd

35 Problem 12-5A (concluded) d June 1 Cash ,000 Bow,... 32,000 Amri,... 48,000 Wilems, ,000 To record admission of Wilems for a 20% interest. Supporting calculations: Bow, = $280,000 + $245,200 = $ 525,200 Amri, = $320,000 $100,000 + $134,800 = 354,800 Total equity prior to admission of new partner = $ 880,000 OR Total Equity Prior to Jill Bow, Aisha Amri, Admission of New Partner 280, , , , , , ,800 = 880,000 Once the total equity prior to admission of the new partner of $880,000 is determined, THEN: Total equity after admission of new partner = $880,000 + $120,000 = $1,000,000; New partner s share of equity = $1,000,000 20% = $200,000; Bonus to new partner = $200,000 $120,000 = $80,000; Bow s share of bonus to new partner = $80,000 40% = $32,000; Amri s share of bonus to new partner = $80,000 60% = $48,000. Part 2 Jill Bow, Aisha Amri, Peter Wilems, 280, , , , , , , ,800 32,000 48, , ,800 OR: Bow, capital = $280,000 + $245,200 32,000 = $493,200 Amri, capital = $320,000 $100,000 + $134,800 48,000 = $306,800 Wilems, capital = $200,000 Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition McGraw-Hill Ryerson Ltd

36 Problem 12-6A (30 minutes) a) May 1 McLean,... 69,000 Freedman,... 69,000 To record admission of Freedman. b) May 1 McLean,... 69,000 Park,... 69,000 To record admission of Park. c) May 1 McLean,... 69,000 Cash... 69,000 To record withdrawal of McLean with no bonus. d) May 1 McLean,... 69,000 Gale, ($132,000 $69,000) 3/ ,625 Lux, ($132,000 $69,000) 5/ ,375 Cash ,000 To record withdrawal of McLean with bonus. e) May 1 McLean,... 69, Accum. Depreciation, Machinery... 83, Gale, ($9,750* 3/8)... 3, Lux, ($9,750* 5/8)... 6, Machinery , Cash... 27, To record withdrawal of McLean with bonus to old partners. *$69,000 ($115,000 $83,000 + $27,250) = $9,750 Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition McGraw-Hill Ryerson Ltd

37 Problem 12-7A (75 minutes) Part 1 a. Cash Machinery Accum. Deprec., Machinery Accounts Payable Jim Vonne, Milton Kent, Ty Johnson, Account balances June 30,... $ 68,750 $ 588,750 $ 137,500 $ 130,375 $ 76,250 $ 200,875 $ 112,500 Sale of Machinery for $488,130* , , , , , ,440 Balance... $ 556,880 $ 0 $ 0 $ 130,375 $ 79,938 $ 215,627 $ 130,940 Payment of liabilities , ,375 Balance... $ 426,505 $ 0 79, , ,940 Distribution of cash to partners.. 426,505 79, , ,940 Balance... $ 0 $ 0 $ 0 $ 0 * $588,750 $137,500 = $451,250; $488,130 $451,250 = $36,880 gain $36,880 1/10 = $3,688 to Vonne $36,880 4/10 = $14,752 to Kent $36,880 5/10 = $18,440 to Johnson b. Cash Machinery Accum. Deprec., Machinery Accounts Payable Jim Vonne, Milton Kent, Ty Johnson, Account balances June 30,... $ 68,750 $ 588,750 $137,500 $ 130,375 $ 76,250 $ 200,875 $ 112,500 Sale of Machinery for $375,000* , , ,500 7,625 30,500 38,125 Balance... $ 443,750 $ 0 $ 0 $130,375 $ 68,625 $ 170,375 $ 74,375 Payment of liabilities , ,375 Balance... $ 313,375 $ 0 68, ,375 74,375 Distribution of cash to partners ,375 68, ,375 74,375 Balance... $ 0 $ 0 $ 0 $ 0 * $588,750 $137,500 = $451,250; $375,000 $451,250= $76,250 loss $ 76,250 1/10 = $7,625 to Vonne $ 76,250 4/10 = $30,500 to Kent $ 76,250 5/10 = $38,125 to Johnson Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition McGraw-Hill Ryerson Ltd

38 Problem 12-7A (continued) c. Cash Machinery (net) Accum. Deprec., Machinery Accounts Payable Jim Vonne, Milton Kent, Ty Johnson, Account balances June 30,... $ 68,750 $ 588,750 $ 137,500 $ 130,375 $ 76,250 $ 200,875 $112,500 Sale of Machinery for $212,500* , , ,500 23,875 95, ,375 Balance... $281,250 $ 0 $ 0 $130,375 $ 52,375 $ 105,375 $ (6,875) Payment of liabilities , ,375 Balance... $ 150,875 $ 0 $52,375 $105,375 $(6,875) Johnson pays deficiency , ,875 $ 157,750 $52,375 $105,375 $ 0 Distribution of cash to partners ,750 52, ,375 Balance... $ 0 $ 0 $ 0 * $588,750 $137,500 = $451,250; $212,500 $451,250= $238,750 loss $238,750 1/10 = $23,875 to Vonne $238,750 4/10 = $95,500 to Kent $238,750 5/10 = $119,375 to Johnson d. Cash Machinery (net) Accum. Deprec., Machinery Accounts Payable Jim Vonne, Milton Kent, Ty Johnson, Account balances June 30,... $ 68,750 $ 588,750 $ 137,500 $130,375 $ 76,250 $ 200,875 $ 112,500 Sale of Machinery for $187,500* , , ,500 26, , ,875 Balance... $256,250 $ 0 $ 0 $130,375 $ 49,875 $ 95,375 $ ( 19,375) Payment of liabilities , ,375 Balance... $ 125,875 $ 0 $49,875 $95,375 $(19,375) Allocation of deficiency**... 3,875 15, ,375 $ 46,000 $ 79,875 $ 0 Distribution of cash to partners ,875 46,000 79,875 Balance... $ 0 $ 0 $ 0 *$588,750 $137,500 = $451,250; $187,500 $451,250= $263,750 loss $263,750 1/10 = $26,375 to Vonne $263,750 4/10 = $105,500 to Kent $263,750 5/10 = $131,875 to Johnson **$19,375 1/5 = $3,875 to Vonne $19,375 4/5 = $15,500 to Kent Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition McGraw-Hill Ryerson Ltd

39 Problem 12-7A (concluded) Part 2 June 30 Jim Vonne,... 79,938 Milton Kent, ,627 Ty Johnson, ,940 Cash ,505 To record the final distribution of cash to the partners. Problem 12-8A (30 minutes) a. Dec. 31 Cash ,000 Accumulated Depreciation ,200 Property, Plant and Equipment ,600 Gain on Liquidation* ,600 To record sale of property, plant and equipment. 31 Gain on Liquidation ,600 Trish Craig, ,200 Ted Smith, ,400 To record allocation of gain to equity; $405,600 ¾ = $304,200; $405,600 ¼ = $101, Accounts Payable... 50,400 Cash... 50,400 To record payment of liabilities. 31 Trish Craig, ,000 Ted Smith, ,800 Cash ,800 To record final distribution of cash; Trish Craig, = $244,800 + $304,200 = $549,000; Ted Smith, = $110,400+ $101,400 = $211,800; Cash = $91,200 + $720,000 $50,400 = $760,800. Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition McGraw-Hill Ryerson Ltd

40 Problem 12-8A (concluded) *NOTE: Students may wish to combine the sale and allocation of gain as follows: Dec. 31 Cash ,000 Accumulated Depreciation ,200 Property, Plant and Equipment ,600 Trish Craig, ,200 Ted Smith, ,400 To record sale of property, plant and equipment and allocation of gain to partners. b. Dec. 31 Cash ,000 Accumulated Depreciation ,200 Loss on Liquidation** ,400 Property, Plant and Equipment ,600 To record sale of property, plant and equipment. 31 Trish Craig, ,800 Ted Smith,... 43,600 Loss on Liquidation ,400 To record allocation of loss; $174,400 ¾ = $130,800; $174,400 ¼ = $43, Accounts Payable... 50,400 Cash... 50,400 To record payment of liabilities. 31 Trish Craig, ,000 Ted Smith,... 66,800 Cash ,800 To record final distribution of cash; Trish Craig, = $244,800 $130,800 = $114,000; Ted Smith, = $110,400 $43,600 = $66,800; Cash = $91,200 + $140,000 $50,400 = $180,800. **NOTE: Students may wish to combine the sale and allocation of loss as follows: Dec. 31 Cash ,000 Accumulated Depreciation ,200 Trish Craig, ,800 Ted Smith,... 43,600 Property, Plant and Equipment ,600 To record sale of property, plant and equipment. Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition McGraw-Hill Ryerson Ltd

41 ALTERNATE PROBLEMS Problem 12-1B (50 minutes) a) Dec. 31 Income Summary... 25,000 Phung,... 8,333 Moier,... 8,333 Lister,... 8,334* To close Income Summary. * rounded b) Dec. 31 Income Summary... 25,000 Phung,... 8,125 Moier,... 9,375 Lister,... 7,500 To close Income Summary.* *Supporting computations: ($130,000/$400,000) $25,000 = $8,125 ($150,000/$400,000) $25,000 = $9,375 ($120,000/$400,000) $25,000 = $7,500 c) Dec. 31 Income Summary... 25,000 Lister,... 6,000 Phung,... 31,000 To close Income Summary.* *Supporting calculations: Phung Moier Lister Total Net income... $25,000 Salary allowances: Phung,... $75,000 Moier,... $40,000 Lister,... $40,000 Interest allowances: Phung (20% on $130,000)... 26,000 Moier (20% on $150,000)... 30,000 Lister (20% on $120,000)... 24,000 Total salaries and interest allocation... $101,000 $70,000 $ 64,000 (235,000) Balance of income over allocated.... $(210,000) Balance allocated equally... (70,000) (70,000) (70,000) 210,000 Balance of income... $ 0 Shares of the partners... $ 31,000 $ 0 $ (6,000) $ 25,000 Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition McGraw-Hill Ryerson Ltd

42 Problem 12-2B (45 minutes) Preliminary calculations: Plan (a) & Plan (c) Percentages based on initial investments: Bosch = $140,000 / $350,000 = 40% Gilbert = $210,000 / $350,000 = 60% Plan (b) Plan (c) Plan (d) Percentages based on time: Bosch = (1/3) / (1/3 + 1) = 25% Gilbert = (1) / (1/3 + 1) = 75% Salary allowance: Gilbert = 12 $8,000 = $96,000 Salary allowance: Gilbert = 12 $10,500 = $126,000 Interest allowances: Bosch = 15% $140,000 = $21,000 Gilbert = 15% $210,000 = $31,500 Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition McGraw-Hill Ryerson Ltd

43 Problem 12-2B (continued) Plan a. Year Calculations Share to Bosch Share to Gilbert Total 1 Net income... $ 85,000 40% $85,000 income... $ 34,000 60% $85,000 income... $ 51,000 2 Net loss... $ (45,000) 40% $45,000 loss... $ (18,000) 60% $45,000 loss... $(27,000) 3 Net income... $ 348,000 40% $348,000 income... $ 139,200 60% $348,000 income... $208,800 Plan b. Year Calculations Share to Bosch Share to Gilbert Total 1 Net income... $ 85,000 25% $85,000 income... $ 21,250 75% $85,000 income... $ 63,750 2 Net loss... $(45,000) 25% $45,000 loss... $(11,250) 75% $45,000 loss... $(33,750) 3 Net income... $348,000 25% $348,000 income... $ 87,000 75% $348,000 income... $261,000 Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition McGraw-Hill Ryerson Ltd

44 Problem 12-2B (continued) Plan c. Year Calculations Share to Bosch Share to Gilbert Total 1 Net income... $ 85,000 Salary allowances... $ 96,000 Total salaries allocation... $ -0- $ 96,000 (96,000) Balance of income... $ (11,000) Remainder 40/60 (initial investment ratio): ( $11,000 40%)... (4,400) ( $11,000 60%)... (6,600) 11,000 Balance of income... $ -0- Shares to each partner $ (4,400) $ 89,400 $ 85,000 2 Net loss... $ (45,000) Salary allowances... $ 96,000 Total salaries allocation... $ -0- $ 96,000 (96,000) Balance of loss... $(141,000) Remainder 40/60 (initial investment ratio): (-$141,000 40%)... (56,400) (-$141,000 60%)... (84,600) 141,000 Balance of loss... $ -0- Shares to each partner $(56,400) $ 11,400 $ (45,000) 3 Net income... $ 348,000 Salary allowances... $ 96,000 Total salaries allocation... $ -0- $ 96,000 (96,000) Balance of income... $ 252,000 Remainder 40/60 (initial investment ratio): ($252,000 40%) ,800 ($252,000 60%) ,200 (252,000) Balance of income... $ -0- Shares to each partner $100,800 $247,200 $ 348,000 Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition McGraw-Hill Ryerson Ltd

45 Problem 12-2B (concluded) Plan d. Year Calculations Share to Bosch Share to Gilbert Total 1 Net income... $ 85,000 Salary allowances... $ 126,000 Interest allowances: ($140,000 15%)... $ 21,000 ($210,000 15%)... 31,500 Total salaries and interest $ 21,000 $ 157,500 (178,500) Balance allocation of income... $(93,500) Remainder equally: ( $93,500 50%)... (46,750) (46,750) 93,500 Balance of income... $ -0- Shares to each partner $ (25,750) $ 110,750 $ 85,000 2 Net loss... $(45,000) Salary allowances... $126,000 Interest allowances: ($140,000 15%)... 21,000 ($210,000 15%)... 31,500 Total salaries and interest $ 21,000 $157,500 (178,500) Balance allocation of loss... $(223,500) Remainder equally: ( $223,500 50%)... (111,750) (111,750) 223,500 Balance of loss... $ -0- Shares to each partner $ (90,750) $ 45,750 $ (45,000) 3 Net income... $ 348,000 Salary allowances... $ 126,000 Interest allowances: ($140,000 15%)... 21,000 ($210,000 15%)... 31,500 Total salaries and interest $ 21,000 $ 157,500 (178,500) Balance allocation of income... $ 169,500 Remainder equally: (169,500 50%)... 84,750 84,750 (169,500) Balance of income... $ -0- Shares to each partner $ 105,750 $ 242,250 $ 348,000 Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition McGraw-Hill Ryerson Ltd

46 Problem 12-3B (40 minutes) Part 1 Income (Loss) Sharing Plan Calculations Jobs Alford Norris Total (a) $240,000/3... $80,000 $80,000 $80,000 $240,000 (b) $240,000 ($150,000/$500,000)... $72,000 $240,000 ($100,000/$500,000)... $48,000 $240,000 ($250,000/$500,000)... $120,000 Total allocated... $72,000 $48,000 $120,000 $240,000 (c) Net income... $240,000 Salary allowances... $70,000 $40,000 $90,000 Interest allowances: 10% $150, ,000 10% $100, ,000 10% $250, ,000 Total salaries and interest... 85,000 50, ,000 (250,000) Balance of income... $ (10,000) Balance allocated equally... (3,333) (3,333) (3,334)* 10,000 Balance of income... $ 0 Shares of partners... $81,667 $46,667 $111,666 $240,000 *Increased to $3,334 due to rounding. Part 2 JAN PARTNERSHIP Statement of Changes in Equity For Year Ended December 31, Jobs Alford Norris Total, January 1... $ -0- $ -0- $ -0- $ -0- Plus: Investments by owners , , , ,000 Net income... 81,667 46, , ,000 Total... $231,667 $146,667 $361,666 $740,000 Less: Partners withdrawals... 50,000 40,000 60, ,000, December $181,667 $106,667 $301,666 $590,000 Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition McGraw-Hill Ryerson Ltd