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 Clarks and Douglass 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 partnerships 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 partners capital investment in a partnership because the business is buying the asset at its current market value. The partnerships 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 Browns investment. Cash 3 Equipment 7 White, Capital 10 To record Whites 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 = $4,000 Baker: $8,000 = $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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