CHAPTER 15

Exercise 15-2

Part A (1) Cash 13,000Accounts Receivable 8,000Office Supplies 2,000Office Equipment 30,000

Accounts Payable 2,000Tom, Capital 51,000

Cash 12,000Accounts Receivable 6,000Office Supplies 800Land 30,000

Accounts Payable 5,000Mortgage Payable 18,800Julie, Capital 25,000

(2) Tom, Drawing 15,000Cash 15,000

Julie, Drawing 12,000Cash 12,000

(3) Income Summary 50,000Tom, Capital $50,000 ($51,000/$76,000) 33,553Julie, Capital $50,000 ($25,000/$76,000) 16,447

Tom, Capital 15,000Julie, Capital 12,000

Tom, Drawing 15,000Julie, Drawing 12,000

Part B TOM AND JULIE PARTNERSHIPStatement of Changes in Partners' CapitalFor the Year Ended December 31, 2004

Tom Julie Total Capital balances, Jan. 1 $ 0 $ 0 $ 0Add: Additional investments 51,000 25,000 76,000

Net income allocation 33,553 16,447 50,000 Totals 84,553 41,447 126,000Less: Withdrawals 15,000 12,000 27,000 Capital balances, Dec. 31 $69,553 $29,447 $99,000

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Exercise 15-10

1. d ($125,000 + $250,000 - $25,000) = $350,000

2. c $60,000 is the fair value of the land invested

3. c $10,000 interest + $14,175 bonus + $6,775 underallocation

4. c Tom $80,000 - (0.6 $10,000)Jim $50,000 - (0.4 $10,000)John $60,000

5. c $39,000 + $8,000 (share of revalued assets) - $550 *(share of excess paid to Al)

* [$61,200 – ($9,000 + $42,000 + $8,000)] 20/80

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ANSWERS TO PROBLEMS

Problem 15-1

1. If the agreement does not provide for a profit-sharing ratio, the UPA provides that profits are to be shared equally. Therefore Day and Night would each get $34,200 allocation.

2. Day Allocation 0.60 $68,400 = $41,040NightAllocation 0.40 $68,400 = 27,360

Total $68,400

Day Night Total 3. Capital Balance 1/1 $75,000 $37,500 $112,500

+ Investments 56,250 18,750 75,000- Withdrawals   (18,750 )   (9,375 ) (28,125)Balance 12/31 $112,500 $46,875 $159,375

Profit Allocation:

Day: =$48,282

Night: =   20,118

$68,400

Portion of Year Weighted Average Day Maintained Average Balance

4. 1/1 Balance $75,000 3/12 $18,750Withdrawal 4/1 $18,750 56,250 2/12 9,375Investment 6/1 37,500 93,750 5/12 39,063Investment 11/1 18,750 112,500 2/12   18,750

Average Balance 12/12 $85,938 $85,938*

Night1/1 Balance $37,500 6/12 $18,750Investment 7/1 $18,750 56,250 3/12 14,063Withdrawal 10/1 9,375 46,875     3/12   11,719 Average Balance 12/12 $44,532       44,532**

$130,470

Profit Allocation:

Day: = $45,054

Night: =   23,346

Total $68,400

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Problem 15-1 (continued) Day Night Total

5. Interest on average balance *$ 12,891 **$ 6,680 $ 19,571Salaries 15,000 8,250 23,250

27,891 14,930 42,821Remainder of $25,579 divided equally 12,790 12,789 25,579

$40,681 $27,719 $68,400

* 0.15 $85,938 = $12,891 (see part 4)** 0.15 $44,532 = $6,680 (see part 4)

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Problem 15-9 DISCOUNT PARTNERSHIPWorksheet to Adjust and Combine the Partnerships' Accounts

Part A June 30, 2008

Up & Down Back & Forth Four Partners'Trial Balance Trial Balance Adjusting and Discount StoresJune 30, 2008 June 30, 2008 Combining Entries Beginning Balances

Cash $25,000 $20,000 $45,000Accounts Receivable 90,000 140,000 230,000Allowance for DoubtfulAccounts 2,000 6,000 (2) 400 (1) 1,600 9,200Merchandise Inventory 180,000 115,000 (3) 28,750 323,750Land 25,000 35,000 60,000Buildings & Equipment 80,000 125,000 205,000Allowance For Depreciation 24,000 61,000 (4) 15,040 100,040Prepaid Expenses 6,000 8,000 14,000Accounts Payable 42,000 54,000 (5) 4,000 100,000Notes Payable 65,000 74,000 139,000Accrued Expenses 34,000 44,000 (6) 4,000 82,000Up, Capital 95,000 (1) 640 (7) 1,656 90,000

(4) 6,016Down, Capital 144,000 (1) 960 (7) 984 135,000

(4) 9,024Back, Capital 65,000 (5) 1,200 (2) 120 67,500

(6) 1,200 (3) 8,625(7) 3,845

Forth, Capital 139,000 (5) 2,800 (2) 280 157,500(6) 2,800 (3) 20,125

                            (7) 3,695$406,000 $406,000 $443,000 $443,000

Goodwill (7) 2,490 2,490 $60,125 $60,125 $880,240 $880,240

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Problem 15-9 (continued)

(1,2) To adjust allowance for doubtful accounts to 4% of receivables.Up and Down: $90,000 0.04 = $3,600 - $2,000 = $1,600 creditBack and Forth: $140,000 0.04 = $5,600 - $6,000 = $400 debit

(3) To adjust inventory to FIFO valuation method 0.80 X = $115,000X = $143,750 - $115,000 = $28,750

(4) To adjust the allowance for depreciation account to an accumulation of depreciation for 3 years computed by the double-decliningbalance method

Desired accumulated depreciation balance: $16,000 + $12,800 + $10,240* = $39,040Depreciation provided 24,000Adjustment needed $15,040

* $80,000 0.20 = $16,000$64,000 0.20 = $12,800$51,200 0.20 = $10,240

(5) To record unrecorded merchandise purchase(6) To record vacation pay accrual ($200 10 2)(7) To adjust capital account as agreed

Up Down Back Forth TotalUnadjusted Capital Balances $95,000 $144,000 $65,000 $139,000 $443,000Net Adjustments   (6,656 ) (9,984 ) 6,345 14,805 4,510Adjusted Capital Balance 88,344 134,016 71,345 153,805 447,510Opening Capital Balances* 90,000 135,000 67,500 157,500 450,000Distribution of Goodwill $1,656 $984 $(3,845 ) $3,695 $2,490

( ) debit * Up $450,000 0.20 = $90,000

Down $450,000 0.30 = $135,000Back $450,000 0.15 = $67,500Forth $450,000 0.35 = $157,500

(0.20 + 0.30)X = $225,000X = $450,000

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Problem 15-9 (continued)

Part B Computation of Cash Settlement Between Partners

Between Between             Up & Down                                                                     Back & Forth                                      

Total Up Down Total Back Forth

Adjusted Capital Balances Excluding Goodwill $222,360 $88,344 $134,016 $225,150 $71,345 $153,805Capital in Excess of Book Value 2,640 1,056 1,584 (150 ) (45 ) (105)

225,000 89,400 135,600 225,000 71,300 153,700Opening Capital Balances 225,000 90,000 135,000 225,000 67,500 157,500Settlement Between Parties $0   $600 $(600 ) $0 $(3,800 ) $3,800

$2,640 0.40 = $1,056 ($150) 0.30 = ($45)$2,640 0.60 = $1,584 ($150) 0.70 = ($105)

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