problem 1 hull hoboken began a partnership on 1 january 2013 hull invests 63 000 323190

Aug 29, 2021 | Uncategorized

Problem 1

Hull & Hoboken began a partnership on 1 January 2013. Hull invests $63,000 cash and machinery with a fair value of $12,000, but which had originally cost Hull $8,000. Hoboken contributed office equipment with a fair value of $5,500 (original cost of $10,000) and $25,500 cash.

The partnership agreement states that income and losses will be distributed as follows:

  1. Hoboken receives a bonus of 10% of profits if profits are greater than $20,000
  2. Each partner receives interest of 8% on their average capital balances for the year.
  3. Any remaining profit/loss is distributed 65% Hull and 35% Hoboken.
  4. The partners have agreed not to make any withdrawals from the business for the first 5 years. This part of the agreement will be renegotiated in the 5th year of operations to take effect in the 6th and later years.

On 31 July Hull invested an additional $10,000 in the business and on 1 November Hoboken invested an additional $5,000 in the business.

In 2013 the partnership reported income of $23,000.

  1. Prepare the journal entry(ies) to record the investments into the partnership by the partners [5]
Date Account name Debit Credit
  1. Prepare the income allocation table (follow format either from textbook page 630 or from page 9 of my chapter 14 notes posted in WebTycho conference). [10]

Cont’d

Numeric Problems

  1. The Abrams, Bartle, and Creighton partnership began the process of liquidation with the following balance sheet:

Abrams, Bartle, and Creighton share profits and losses in a ratio of 3:2:5. Liquidation expenses are expected to be $12,000.

After the liquidation expenses of $12,000 were paid and the noncash assets sold, Creighton had a deficit of $8,000. For what amount were the noncash assets sold? [3]

  1. The Abrams, Bartle, and Creighton partnership began the process of liquidation with the following balance sheet:

Abrams, Bartle, and Creighton share profits and losses in a ratio of 3:2:5. Liquidation expenses are expected to be $12,000.

If the noncash assets were sold for $234,000, what amount of the loss would have been allocated to Bartle? [3]

Problem 2

  1. The following information relates to the Shand, Shereen and Shankle Partnership:

Partner Capital Balance P/L Ratio

Shand…………………………………………………………….. $205,000 25%

Shereen…………………………………………………………….. 88,000 40%

Shankle……………………………………………………………. 147,000 35%

Prepare the journal entries to record the admission of Shipshewana on 1 May 2014 under each of the independent scenarios.

  1. The existing partners agree to admit Shipshewana to the partnership, giving him a 10% interest. Shipshewana will pay $50,000 to the partners personally (ie, the money is not paid into the partnership) and the goodwill approach is used. [9]
Date Account name Debit Credit
  1. The existing partners agree to admit Shipshewana to the partnership, giving him a 15% interest. Shipshewana will contribute $60,000 into the partnership and any goodwill is credited to Shipshewana. [9]
Date Account name Debit Credit

Multiple Choice

  1. Dancey, Reese, Newman, and Jahn were partners who shared profits and losses on a 4:2:2:2 basis, respectively. They were beginning to liquidate their business. At the start of the process, capital balances were as follows:

Which one of the following statements is true for a predistribution plan?[2]

  1. The first available $16,000 would go to Newman. The next $12,000 would go $8,000 to Dancey and $4,000 to Newman. The following $32,000 would be shared by Dancey, Reese, and Newman. The total distribution would be $60,000 before all four partners share any further payments in their profit and loss sharing ratios.
  2. The first $20,000 would go to Newman. The next $8,000 would go to Dancey. The next $12,000 would be shared by Dancey, Reese, and Newman. The total distribution would be $40,000 before all four partners share any further payments equally.
  3. The first available $8,000 would go to Newman. The next $4,000 would be split equally between Dancey and Newman. The following $12,000 would be shared by Dancey, Reese, and Newman. The total distribution would be $24,000 before all four partners share any further payments in their profit and loss sharing ratios.
  4. The first available $16,000 would go to Newman. The next $12,000 would go $8,000 to Dancey and $4,000 to Newman. The following $32,000 would be shared by Dancey, Reese, and Newman. The total distribution would be $60,000 before all four partners share any further payments equally.
  5. The first available $8,000 would go to Newman. The next $4,000 would be split equally between Dancey and Newman. The following $12,000 would be shared by Dancey, Reese, and Newman. The total distribution would be $24,000 before all four partners share any further payments equally.

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