Fundamentals of Accounting 18e CHP 12

Chapter 12
Accounting for Partnerships

QUESTIONS
1.
Under the circumstances described, the death, bankruptcy, or legal inability of a

partner to execute a 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.
2.
Mutual agency means that each partner is an agent of the partnership and can
commit it to contracts that are within the normal scope of its business.
3.
Yes, partners can limit the right of a partner. 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.
4.
No, he does not have this right. A partnership is a voluntary association and
partners have the right to select the people with whom they associate as partners.
5.
If partners agree on the method of sharing incomes, but say nothing of losses, then
any losses are shared in the same manner as income.
6.
The allocation of net income to the partners is reported on the statement of partners'
equity.
7.
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.
8.
All partners in a general partnership have unlimited liability. A limited partnership

includes both general and limited partners, and the limited partners have no
personal liability for partnership debts. Also, the general partners assume the
management duties of the partnership.
9.
George's claim is not valid unless the previously agreed upon method of sharing net
incomes and losses granted George an annual salary allowance of $25,000. Unless
the partnership agreement says otherwise, partners have no claim to a salary
allowance in payment for their services.
10. No. Kay is still liable to her former partners for her share of the losses.
McGraw-Hill Companies, 2007

Solutions Manual, Chapter 12
139
11. At all times in the accounting history of a partnership (or any organization), assets
must equal liabilities plus 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 claims (equity) of the partners.
12. The remaining partners should share the decline in their equities in accordance with
their income-and-loss-sharing ratio.
QUICK STUDIES
Quick Study 12-1 (10 minutes)
a. The partnership will need to pay because it is a merchandising firm.
That is, if the vendor knows nothing to the contrary, the vendor can
assume that Leon has the right, because of mutual agency, to bind the
firm to contracts for the purchase of merchandise.
b. A public accounting firm is not in the merchandising business.
Consequently, 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 Leon is acting as the agent for the partnership. Hence,
the partnership probably will not have to pay.
Stolton
Net income.........................................
Salary allowances
Stolton..............................................
Bright...............................................
Total salary allowances..................
Balance of income............................
Balance allocated equally
Stolton..............................................
Bright................................................
Total allocated equally...................
Balance of income............................
Shares of the partners.....................
Bright
Total
52,000
$15,000
$20,000
35,000
17,000
8,500
8,500
______
$23,500
______
$28,500
17,000
$
0

140
Fundamental Accounting Principles, 18th Edition

If Blake is allocated a $100,000 salary allowance and there remains $4,000
to be divided equally, giving Matthai $2,000, then this shows that the
partnership must have earned net income of $104,000.
Since Mourlan is a limited partner, he is not personally liable for any unpaid
debts of the partnership. Therefore, the partnerships creditors cannot
pursue Mourlans personal assets.

Choi, Capital..........................................................................
Amal, Capital..........................................................................
Stein, Capital.....................................................................
10,000
10,000
20,000
To record admission of Stein by purchase.

Cash
Kwon, Capital....................................................................
40,000
40,000
To record admission of Kwon.

Total partnership return on equity
= Net Income/Average equity

= $25,000 / ($150,000 + $200,000)/2
= $25,000 / $175,000
= 14.3%
Howe partner return on equity
= Partner net income/Average partner equity

= $20,000 / ($100,000 + $140,000)/2
= $20,000 / $120,000
= 16.7%
Duley partner return on equity
= Partner net income/Average partner equity

= $5,000 / ($50,000 + $60,000)/2
= $5,000 / $55,000
= 9.1%

141
EXERCISES
Exercise 12-1 (15 minutes)
Characteristic
General Partnerships
1. Life
Limited
2. Owners liability
Unlimited
3. Legal status
Not separate from partners
4. Tax status of income
Taxed only once
5. Owners authority
Mutual agency
6. Ease of formation
Requires only an agreement
7. Transferability of ownership
Difficult to transfer
8. Ability to raise large amounts of capital Low ability

142

a.
Recommended Organization:
Sharif, Henry, and Korb might first
consider organizing their business as a general partnership. However, a
problem for these 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, a better course of
action is probably to incorporate. In this way they might be able to find
investors to contribute capital for stock. They can structure the
financing so that they remain the major stockholders in the company.
Taxation: As a corporation, any income will be subject to corporate
income tax. Any dividends paid to the stockholders will also normally
be taxed, but at a much lower level. Moreover, some lower income
taxpayers could potentially pay little or no dividend tax. Any salaries
that Sharif, Henry, and Korb pay themselves will be a tax-deductible
expense for the business.
Advantages: Several key advantages to the corporate form include its
limited liability and the potential to sell more stock if additional funds
are needed.
b. Recommended Organization:
The two doctors should form a
partnership. A general partnership will have the disadvantage of
unlimited liability so they probably want to consider a limited liability
partnership. The partnership can borrow funds from the bank to obtain
the initial needed capital for the business.
Taxation: The owners will pay individual taxes on income earned by the
partnership but the partnership will not be taxed.
Advantages: The advantages of the partnership are ease of formation
and owner authority.
c. Recommended Organization: Munson should consider setting up 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.
Taxation: All partners will pay individual taxes on income distributed to
them, but the partnership entity will not pay income tax.

143
Advantages: The advantages to Milan will be the authority over the

partnership that he will have as general partner and the ease of raising
capital.

144

1a. 2008
Mar. 1 Cash....................................................................... 82,500
Land........................................................................ 60,000
Building.................................................................. 100,000
Long-Term Note Payable................................
Eckert, Capital.................................................
Kelley, Capital..................................................
92,500
82,500
67,500
To record initial capital investments.
1b. 2008
Oct. 20
Eckert, Withdrawals.............................................
Kelley, Withdrawals.............................................
Cash................................................................
34,000
20,000
54,000
To record partners withdrawals.
1c. 2008
Dec. 31
Eckert, Capital......................................................
Kelley, Capital......................................................
Eckert, Withdrawals.......................................
Kelley, Withdrawals.......................................
34,000
20,000
34,000
20,000
To close withdrawals accounts.
Dec. 31
Income Summary.................................................
Eckert, Capital................................................
Kelley, Capital................................................
90,000
58,250
31,750
To close Income Summary account.*
2.
Capital account balances
Initial investment.........................
Withdrawals.................................
Share of income*.........................
Ending balances..........................
Eckert
$ 82,500
(34,000)
58,250
$106,750
*Supporting calculations
Eckert
Net income.....................................
Salary allowance
Eckert............................................. $25,000
Total salary allowance...................
Balance of income.........................
Interest allowances
Eckert (10% on $82,500)..............
8,250
Kelley (10% on $67,500)..............
Total interest allowances..............
Eckert............................................ 25,000
Kelley
Kelley
$ 67,500
(20,000)
31,750
$ 79,250
Total
$90,000
25,000
65,000
$ 6,750
15,000
50,000

145
Kelley............................................
Total allocated equally..................
Balance of income......................... _______
Shares of the partners.................. $58,250
25,000
_______
50,000
$
0
$31,750

146

Kramer
Knox
Total
$80,000
$160,000
$91,429
$91,429
$ 68,571
91,429
$160,000
$40,000
$160,000
90,000
Plan (1)
$160,000 x 1/2..............................
$80,000
Plan (2)
($60,000/$140,000) x $160,000. . .
($80,000/$140,000) x $160,000. . .
$68,571
$68,571
Plan (3)
Net income...................................
Salary allowances.......................
Interest allowances
($60,000 x 10%).........................
($80,000 x 10%).........................
Total salary and interest............
Balance of income......................
($56,000)/2....................................
Balance of income......................
Shares of each partner...............
$50,000
6,000
8,000
28,000
28,000
.
.
$84,000 $76,000
6,000
8,000
104,000
56,000
56,000
$
0

147

Kramer
1.
Net income.....................................
Salary allowances......................... $50,000
Interest allowances
($60,000 x 10%)............................
6,000
($80,000 x 10%)............................
Total salaries and interest............
Remainder equally
($5,200)/2........................................
(2,600)
Shares each partner...................... $53,400
2.
Net income.....................................
Salary allowances......................... $50,000
Interest allowances
($60,000 x 10%)............................
6,000
($80,000 x 10%)............................
Total salaries and interest............
Remainder equally
$(120,800)/2.................................... (60,400)
Shares of each partner................. $ (4,400)
Knox
Total
$ 40,000
$ 98,800
90,000
6,000
8,000
104,000
(5,200)
8,000
(2,600)
_______
(5,200)
$
$ 45,400
$ 40,000
8,000
(60,400)
_______
$(12,400)
$ (16,800)
90,000
6,000
8,000
104,000
(120,800)
120,800
$
0

Sept. 30
Mandy, Capital..................................................
Brittney, Capital..........................................
100,000
100,000
To record admission of Brittney.

148

1.
Nov.
Cash.....................................................................
Madison, Capital...........................................
90,000
90,000
To record admission of Madison

[($510,000 + $90,000) x 15%].
2.
Nov. 1
Cash.................................................................... 120,000
Madison, Capital..........................................
Main, Capital................................................
First, Capital.................................................
94,500
20,400
5,100
To record admission of Madison.

Supporting computations
$510,000 + $120,000 = $630,000
$630,000 x 15% = $94,500
$120,000 - $94,500 = $25,500
$25,500 x 80% = $20,400
$25,500 x 20% = $5,100
3.
Nov. 1
Cash....................................................................
Main, Capital......................................................
First, Capital.......................................................
Madison, Capital..........................................
80,000
6,800
1,700
88,500
To record admission of Madison.

Supporting computations
$510,000 + $80,000 = $590,000
$590,000 x 15% = $88,500
$80,000 - $88,500 = $(8,500)
$(8,500) x 80% = $(6,800)
$(8,500) x 20% = $(1,700)

149

1.
Jan. 31
Tulip, Capital......................................................
Cash..............................................................
60,000
60,000
To record retirement of Tulip.
2.
Jan. 31
Tulip, Capital......................................................
Holland, Capital*................................................
Flowers, Capital**..............................................
Cash..............................................................
60,000
12,500
7,500
80,000

* (5/8 x $20,000)
**(3/8 x $20,000)
3.
Jan. 31
Tulip, Capital......................................................
Holland, Capital*..........................................
Flowers, Capital**........................................
Cash..............................................................
60,000
18,750
11,250
30,000

* (5/8 x $30,000)
**(3/8 x $30,000)

150

1.
Initial investments.............
Allocation of all losses
($630,000 - $60,000)/3......
Capital balances................
Red
$180,000
White
$240,000
Blue
$210,000
Total
$630,000
(190,000)
$ (10,000)
(190,000)
$ 50,000
(190,000)
$ 20,000
(570,000)
$ 60,000
2. a)
Aug. 31 Cash..................................................................
Red, Capital................................................
10,000
10,000
To record payment of deficiency.
b)
Aug. 31 White, Capital...................................................
Blue, Capital.....................................................
Cash............................................................
50,000
20,000
70,000
To distribute remaining cash.
3. a)
Blue, Capital.....................................................
Red, Capital................................................
5,000
5,000
10,000
To transfer deficiency to other partners.
b)
Blue, Capital.....................................................
Cash............................................................
45,000
15,000
60,000
To distribute remaining cash.

151

a. Loss from selling assets
Total book value of assets.....................................
Total liabilities (before liquidation)........................
Total liabilities remaining after paying
proceeds of asset sales to creditors..................
Cash proceeds from sale of assets.......................
Loss on sale of assets*..........................................
$126,000
$78,000
(28,000)
(50,000)
$ 76,000
* Alternative computation
1) $28,000 = $78,000 - Cash from assets sale
(This implies cash from assets sale is $50,000)
2) Loss on sale of assets = Book value of assets - Cash received
= $126,000 - $50,000 = $76,000
b. Loss allocation
Capital balances before
loss liquidation
Allocation of loss
$76,000 x 1/10.....................
$76,000 x 4/10.....................
$76,000 x 5/10.....................
Capital balances after loss. .
Turner
Roth
Lowe
Total
$ 2,500
$ 14,000
$ 31,500
$ 48,000
(30,400)
_______
$(16,400)
(38,000)
$ (6,500)
(76,000)
$(28,000)
(7,600)
______
$(5,100)
c. Liability to be paid
Each partner should pay the amount of the debit (deficit) balance in his
or her own capital account.

152

a. Loss from selling assets
Total book value of assets.......................................
Total liabilities before liquidation............................
Total liabilities remaining after paying proceeds
of asset sales to creditors.....................................
Cash proceeds from sale of assets........................
Loss on sale of assets.............................................
$126,000
$78,000
(28,000)
(50,000)
$ 76,000
b. Loss and deficit allocation

Capital balances before loss
Allocation of loss
$76,000 x 1/10.....................
$76,000 x 4/10.....................
$76,000 x 5/10.....................
Capital balances after loss. .
Allocation of Lowe's deficit
to Turner and Roth
$6,500 x 1/5.........................
$6,500 x 4/5.........................
Cash paid by each partner
Turner
$ 2,500
Roth
$ 14,000
Lowe
$ 31,500
Total
$ 48,000
(7,600)
______
(5,100)
(30,400)
_______
(16,400)
(1,300)
______
(5,200)
$(6,400) $(21,600)
(38,000) (76,000)
(6,500) $(28,000)
6,500
$
0
_________
$(28,000)
c. Liability to be paid
As a limited partner, Lowe has no personal liability for the $28,000
liability. Therefore, Turner and Roth must share the loss reflected in
Lowe's capital account deficit as shown above.
Hunt Sports Enterprises LP:
Return on equity:
$468,032 / [($947,000 + $1,365,032)/2]
= 40.5%
Soccer LP:
Partner return on equity:
$22,134 / [($189,000 + $211,134)/2]
= 11.1%
Football LP:
Partner return on equity:
$445,898 / [($758,000 + $1,153,898)/2]
= 46.6%

153
PROBLEM SET A
Problem 12-1A (50 minutes)
1.
Dec. 31 Income Summary................................................
Kim Ries, Capital..........................................
Tere Bax, Capital..........................................
Josh Thomas, Capital..................................
249,000
83,000
83,000
83,000
To close Income Summary.
2.
Dec. 31
Income Summary................................................
Kim Ries, Capital..........................................
Tere Bax, Capital..........................................
249,000
62,250
87,150
99,600
To close Income Summary*.

*Supporting computations
($80,000/$320,000) x $249,000 = $62,250
($112,000/$320,000) x $249,000 = $87,150
($128,000/$320,000) x $249,000 = $99,600
3.
Dec. 31
Income Summary................................................
Kim Ries, Capital..........................................
Tere Bax, Capital..........................................
249,000
79,000
72,200
97,800
To close Income Summary*.

Net income...................................
Salary allowances
Ries............................................
Bax.............................................
Thomas......................................
Total salaries................................
Balance after salary allowances.
Interest allowances
Ries (10% on $80,000)..............
Bax (10% on $112,000).............
Thomas (10% on $128,000)......
Total interest................................
Bal. after interest and salaries....
Balance allocated equally...........
Total allocated equally................
Balance of income.......................
Shares of the partners.................
Ries
Bax
Thomas
Total
$249,000
$66,000
$56,000
$80,000
202,000
47,000
8,000
11,200
12,800
32,000
15,000
5,000
5,000
5,000
______
$79,000
______
$72,200
______
$97,800
15,000
0

154

Preliminary calculations
Plan (a) & Plan (c)
Percentages based on initial investments

Watts = $42,000/$105,000 = 40%
Lyon = $63,000/$105,000 = 60%
Plan (b)
Percentages based on time

Watts = 0.5/1.5 = 33 1/3%
Lyon = 1.0/1.5 = 66 2/3%
Plan (c) & Plan (d)
Salary allowance
Lyon= 12 x $6,000 = $72,000
Plan (d)
Interest allowances
Watts = 10% x $42,000 = $ 4,200
Lyon= 10% x $63,000 = $ 6,300
Income (Loss)
Sharing Plan
(a)
(b)
(c)
Year 1
Calculations
40% x $36,000 loss...............................

60% x $36,000 loss...............................
$(14,400)
33 1/3% x $36,000 loss.........................

................................................................
66 2/3% x $36,000 loss.........................
................................................................
$(12,000)
Lyon
$(21,600)
$(24,000)
Salary allowance...................................
40% x ($36,000 loss + $72,000 salary)
60% x ($36,000 loss + $72,000 salary)
Totals.....................................................
(d)
Watts
$ 72,000
$(43,200)
$(43,200)
(64,800)
$ 7,200
Salary allowance...................................
Interest allowances...............................
$ 72,000
6,300
50% x ($36,000 loss + $72,000

salary + $10,500 interest)..................
Totals.....................................................
(59,250) (59,250)
$(55,050) $ 19,050
________
4,200

155
Problem 12-2A (Concluded)

Income (Loss)
Sharing Plan
(a)
(b)
(c)
(d)
(b)
(c)
(d)
Calculations
Watts
40% x $90,000 income..............................

60% x $90,000 income..............................
$36,000
33 1/3% x $90,000 income........................

66 2/3% x $90,000 income........................
$30,000
Salary allowance.......................................
40% x ($90,000 income - $72,000 salary). .
60% x ($90,000 income - $72,000 salary). .
Totals.........................................................
Salary allowance.......................................
Interest allowances..................................
50% x ($90,000 income - $72,000
salary - $10,500 interest).......................
Totals.........................................................
Income (Loss)
Sharing Plan
(a)
Year 2
Lyon
$54,000
$60,000
$72,000
$ 7,200
$ 7,200
10,800
$82,800
$ 4,200
$72,000
6,300
3,750
$ 7,950
3,750
$82,050
Watts
Lyon
_______
Year 3
Calculations
40% x $150,000 income.................................

60% x $150,000 income.................................
$60,000
33 1/3% x $150,000 income...........................

66 2/3% x $150,000 income...........................
$50,000
Salary allowance............................................
40% x ($150,000 income - $72,000 salary)...
60% x ($150,000 income - $72,000 salary)...
Totals..............................................................
Salary allowance............................................
Interest allowances.......................................
50% x ($150,000 income - $72,000
salary - $10,500 interest)............................
Totals..............................................................
$ 90,000
$100,000
$ 72,000
$31,200
$31,200
46,800
$118,800
$ 4,200
$ 72,000
6,300
33,750
$37,950
33,750
$112,050
_______

156

157

158

Part 1
a)
Feb. 1
Benson, Capital..................................................... 138,000

North, Capital...................................................
138,000
To record admission of North.
b)
Feb. 1
Benson, Capital..................................................... 138,000

Schmidt, Capital..............................................
138,000
To record admission of Schmidt.
c)
Feb. 1
Benson, Capital..................................................... 138,000

Cash.................................................................
138,000
To record withdrawal of Benson with no bonus.
d)
Feb. 1
Benson, Capital..................................................... 138,000

Meir, Capital*......................................................... 28,500
Lau, Capital**......................................................... 47,500
Cash.................................................................
214,000
To record withdrawal of Benson with bonus.
* ($214,000 - $138,000) x 3/8
**($214,000 - $138,000) x 5/8
e)
Feb. 1
Benson, Capital..................................................... 138,000

Accumulated DepreciationEquipment............ 23,200
Meir, Capital*...................................................
Lau, Capital**...................................................
Equipment........................................................
Cash.................................................................
22,950
38,250
70,000
30,000
To record withdrawal of Benson with bonus to

old partners.
* [$138,000 - ($70,000 - $23,200 + $30,000)] x 3/8.
**[$138,000 - ($70,000 - $23,200 + $30,000)] x 5/8.

159

Part 2
a)
Feb. 1
Cash......................................................................
Rhodes, Capital*............................................
200,000
200,000
To record admission of Rhodes.

$168,000 + $138,000 + $294,000 = $600,000
($600,000 + $200,000) x 25% = $200,000
Thus, no bonus is received or paid.
b)
Feb. 1
Cash......................................................................
Meir, Capital ($41,250* x 3/10).............................
Benson, Capital ($41,250* x 2/10).......................
Lau, Capital ($41,250* x 5/10)..............................
Rhodes, Capital..............................................
145,000
12,375
8,250
20,625
186,250
To record Rhodes admission and bonus.

* Supporting calculations
($600,000 + $145,000) x 25% = $186,250
$145,000 - $186,250 = $(41,250)
Thus, a bonus is paid to new partner.
c)
Feb. 1
Cash......................................................................
Meir, Capital ($46,500* x 3/10).......................
Benson, Capital ($46,500* x 2/10).................
Lau, Capital ($46,500* x 5/10)........................
Rhodes, Capital..............................................
262,000
13,950
9,300
23,250
215,500
To record admission of Rhodes and bonus to old partners.

* Supporting calculations
($600,000 + $262,000) x 25% = $215,500
$262,000 - $215,500 = $46,500
Thus, old partners receive a bonus.

160

Note: All entries in this problem are dated May 31.
1.
(a)
(b)
(c)
(d)
Cash................................................................
Inventory..................................................
Gain on Sale of Inventory.......................
600,000
Gain on Sale of Inventory.............................

Kendra, Capital ($62,800 x 3/6)...............
Cogley, Capital ($62,800 x 2/6)...............
Mei, Capital ($62,800 x 1/6).....................
62,800
Accounts Payable..........................................
Cash..........................................................
245,500
Kendra, Capital ($93,000+ $31,400)...............

Cogley, Capital ($212,500 + $20,933).............
Mei, Capital ($167,000 + $10,467).................
Cash..........................................................
124,400
233,433
177,467
Cash................................................................
Loss on Sale of Inventory.............................
Inventory..................................................
500,000
37,200
Kendra, Capital ($37,200 x 3/6).....................

Cogley, Capital ($37,200 x 2/6).....................
Mei, Capital ($37,200 x 1/6)...........................
Loss on Sale of Inventory.......................
18,600
12,400
6,200
Accounts Payable..........................................
Cash..........................................................
245,500
Kendra, Capital ($93,000 - $18,600)................

...........................................................................
Cogley, Capital ($212,500 - $12,400)..............
Mei, Capital ($167,000 - $6,200)....................
Cash..........................................................
74,400
537,200
62,800
31,400
20,933
10,467
245,500
535,300
2.
(a)
(b)
(c)
(d)
537,200
37,200
245,500
200,100
160,800
435,300

161

3.
(a)
(b)
(c)
(d)
Cash......................................................................
Loss on Sale of Inventory...................................
Inventory.........................................................
320,000
217,200
Kendra, Capital ($217,200 x 3/6).........................

Cogley, Capital ($217,200 x 2/6).........................
Mei, Capital ($217,200 x 1/6)...............................
108,600
72,400
36,200
Cash......................................................................
Kendra, Capital ($93,000 - $108,600)............
15,600
Accounts Payable................................................
Cash................................................................
245,500
Cogley, Capital ($212,500 - $72,400)..................

Mei, Capital ($167,000 - $36,200)........................
Cash................................................................
140,100
130,800
Cash......................................................................
Loss on Sale of Inventory...................................
Inventory.........................................................
250,000
287,200
Kendra, Capital ($287,200 x 3/6).........................

Cogley, Capital ($287,200 x 2/6).........................
Mei, Capital ($287,200 x 1/6)...............................
143,600
95,733
47,867
Cogley, Capital ($50,600 x 2/3)...........................

Mei, Capital ($50,600 x 1/3).................................
Kendra, Capital ($93,000 - $143,600).............
33,733
16,867
Accounts Payable................................................
Cash................................................................
245,500
Cogley, Capital*....................................................
Mei, Capital**........................................................
Cash................................................................
83,034
102,266
537,200
217,200
15,600
245,500
270,900
4.
(a)
(b)
(c)
(d)
537,200
287,200
50,600
245,500
185,300
*$212,500 - $95,733 - $33,733

**$167,000 - $47,867 - $16,867
162

163

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Chapter 12

Accounting for Partnerships

Under the circumstances described, the death, bankruptcy, or legal inability of a

All partners in a general partnership have unlimited liability. A limited partnership

McGraw-Hill Companies, 2007

McGraw-Hill Companies, 2007

Fundamental Accounting Principles, 18th Edition

Quick Study 12-3 (10 minutes)

Quick Study 12-5 (10 minutes)

To record admission of Stein by purchase.

Quick Study 12-6 (10 minutes)

To record admission of Kwon.

Quick Study 12-7 (15 minutes)

= Net Income/Average equity

Howe partner return on equity

= Partner net income/Average partner equity

Duley partner return on equity

= Partner net income/Average partner equity

McGraw-Hill Companies, 2007

Not separate from partners

4. Tax status of income

Taxed only once

Requires only an agreement

8. Ability to raise large amounts of capital Low ability

McGraw-Hill Companies, 2007

Fundamental Accounting Principles, 18th Edition

Exercise 12-2 (20 minutes)

McGraw-Hill Companies, 2007

Advantages: The advantages to Milan will be the authority over the

McGraw-Hill Companies, 2007

Fundamental Accounting Principles, 18th Edition

Exercise 12-3 (25 minutes)

To record initial capital investments.

To record partners withdrawals.

To close withdrawals accounts.

To close Income Summary account.*

McGraw-Hill Companies, 2007

McGraw-Hill Companies, 2007

Fundamental Accounting Principles, 18th Edition

Exercise 12-4 (30 minutes)

McGraw-Hill Companies, 2007

Exercise 12-5 (35 minutes)

Exercise 12-6 (10 minutes)

To record admission of Brittney.

McGraw-Hill Companies, 2007

Fundamental Accounting Principles, 18th Edition

Exercise 12-7 (25 minutes)

To record admission of Madison

To record admission of Madison.

To record admission of Madison.

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Exercise 12-8 (15 minutes)

To record retirement of Tulip.

To record retirement of Tulip.

To record retirement of Tulip.

McGraw-Hill Companies, 2007

Fundamental Accounting Principles, 18th Edition

Exercise 12-9 (30 minutes)

To record payment of deficiency.

To distribute remaining cash.

To transfer deficiency to other partners.

To distribute remaining cash.