Chapter_12_Solutions_7e

Chapter_12_Solutions_7e - Chapter 12 Partnerships √ Quick...

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Unformatted text preview: Chapter 12 Partnerships √ Quick Check Answers: 1. a 3. b 5. d 7. b 9. d 2. b 4. c 6. c 8. d 10. a Explanations: 4. c. $50,000 = $150,000 × 1/3 7. b. Credit Clark’s and Douglas’s capital accounts for $25,000 each. Clark and Douglas share the $50,000 gain equally since they have no formal profit-and-loss agreement. 8. d. Bonus to Tate ($47,000 $40,000)………….. − $ 7,000 Roberts’ share of the loss ($7,000 × 4/7)…… $(4,000 ) Chapter 12 Partnerships 251 √ Short Exercises (10 min.) S 12-1 1. Advantages: A partnership can raise more capital than a proprietorship , combines the partners’ expertise, and can be more productive than individuals working alone. A partnership is less expensive to organize than a corporation . In addition, the partnership income is not taxed. The partnership’s income is taxed to the partners as individuals. There is no double taxation of partnerships. 2 . Disadvantages: The partnership agreement may be difficult to formulate since it defines the distribution of net income and net loss. The agreement must be rewritten when there is a change in partnership. In addition, mutual agency and unlimited liability create personal obligations for each partner, unlike a stockholder, who has limited personal liability for the obligations of a corporation. Therefore, partnerships are fragile. Accounting 7/e Solutions Manual 252 (5 min.) S 12-2 Market value measures a partner’s capital investment in a partnership because the business is buying the asset at its current market value. The partnership’s journal entry is Journal DATE ACCOUNTS AND EXPLANATIONS POST. REF. DEBIT CREDIT Land 500,000 Stubbs, Capital 500,000 To record Stubbs’ investment. Chapter 12 Partnerships 253 (10 min.) S 12-3 Req. 1 Journal ACCOUNTS AND EXPLANATIONS POST. REF. DEBIT CREDIT Millions Cash 1 Land 10 Note Payable 3 Brown, Capital 8 To record Brown’s investment. Cash 3 Equipment 7 White, Capital 10 To record White’s investment. Req. 2 (All amounts in millions) Total assets: $1 + $10 + $3 + $7 = $21 Total liabilities: = $ 3 Total owners’ equity: $8 + $10 (or $21 $3) − = $18 Accounting 7/e Solutions Manual 254 (5-10 min.) S 12-4 1. Abel: $8,000 × ½ = $4,000 Baker: $8,000 × ½ = $4,000 2. Abel, Capital Baker, Capital 4,000 20,000 4,000 16,000 Bal. 16,000 Bal. 12,000 Chapter 12 Partnerships 255 (10 min.) S 12-5 Lee Muse Nall Total Total net income...............................……….. $92,000 Sharing of first $40,000 of net income based on capital balances: Lee ([$20,000 / $100,000] × $40,000)……. $ 8,000 Muse ([$30,000 / $100,000] × $40,000)……. $12,000 Nall ([$50,000 / $100,000] × $40,000)……. $20,000 Total........................................……….. 40,000 Net income remaining for allocation..…….. $52,000 Sharing of next $40,000 based on service: Lee ($40,000 × 1/2)...............………….. 20,000 Nall ($40,000 × 1/2)..............…………... 20,000 Total..........................................………Total....
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Chapter_12_Solutions_7e - Chapter 12 Partnerships √ Quick...

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