Lo5 exercise 9 required 1 record the entry to revalue

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Cengage Advantage Books: Foundations of the Legal Environment of Business
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Chapter 16 / Exercise 2
Cengage Advantage Books: Foundations of the Legal Environment of Business
Jennings
Expert Verified
Exercise 9 December 31, 2006 is shown below. Partners Vail, Wacker, and Yang allocate profit and loss in their respective ratios of 4:5:7. The partnership agreed to pay partner Yang $227,500 for his partnership interest upon his retirement from the partnership on January 1, 2007. Any payments exceeding Yang’s capital balance are treated as a bonus from partners Vail and Wacker. AssetsCash $75,000Inventory87,500Marketable securities60,000Land90,000Building-net150,000Total assets$462,500EquitiesVail, capital$212,500Wacker, capital112,500Yang, capital137,500Total equities$462,500Required:1. Record the entry to revalue the partnership assets prior to the admission of Lange.2. Calculate how much Lange will have to invest to acquire a 10% interest.3. If Lange paid $200,000 to the partnership in exchange for a 10% interest, what would be the bonus that is allocated to each partner's capital account?A summary balance sheet for the Vail, Wacker Yang partnership on December 31, 2006 is shown below. Partners Vail, Wacker, and Yang allocate profit and loss in their respective ratios of 4:5:7. The partnership agreed to pay partner Yang $227,500 for his partnership interest upon his retirement from the partnership on January 1, 2007. Any payments exceeding Yang’s capital balance are treated as a bonus from partners Vail and Wacker. AssetsCash $75,000Inventory87,500Marketable securities60,000Land90,000Building-net150,000Total assets$462,500EquitiesVail, capital$212,500Wacker, capital112,500Yang, capital137,500Total equities$462,500
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Cengage Advantage Books: Foundations of the Legal Environment of Business
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Chapter 16 / Exercise 2
Cengage Advantage Books: Foundations of the Legal Environment of Business
Jennings
Expert Verified
Required: Prepare the journal entry to reflect Yang’s retirement from the partnership.
LO5 Exercise 10 A summary balance sheet for the Almond, Brandt, and Clack partnership on December 31, 2006 is shown below. Partners Almond, Brandt, and Clack allocate profit and loss in their respective ratios of 2:1:1. The partnership agreed to pay partner Brandt $135,000 for his partnership interest upon his retirement from the partnership on January 1, 2007. The partnership financials on January 1, 2007 are: AssetsCash $75,000Inventory85,000Marketable securities60,000Land90,000Building-net150,000Total assets$420,000EquitiesAlmond, capital$210,000Brandt, capital105,000Clack, capital105,000Total equities$420,000Required: Prepare the journal entry to reflect Brandt’s retirement from the partnership: 1. Assuming a bonus to Brandt. 2. Assuming a revaluation of total partnership capital based on excess payment. 3. Assuming goodwill to excess payment is recorded.
SOLUTIONS Multiple Choice Questions 1.a2.d3.c4.b5.b6.cThe assets will be valued upward by $90,000 which, allocated on a 2:3:5 basis, yields $18,000 to McCune, $27,000 to Nall, and $45,000 to Oakely.7.dAfter the revaluation, the assets will be recorded at $602,500. If Pavic is admitted for a one-fifth interest, the $602,500 represents 80% of the total implied capital. Dividing $602,500 by 80% gives a total capitalization of $753,150 for which $150,625 is required from Pavic for a 20% interest.8.dEach of the original partners has given up 20% of their interest to Pavic. Their profit and loss sharing ratios will therefore be 80% of what they were before the admission of Pavic.McCune 20% x 80% = 16%Nall 30% x 80% = 24%Oakely 50% x 80% = 40%Pavic = 20%
Expressed as: 4:6:10:59.cAlbion: [($100,000 x 6) + ($88,000 x 1) ($128,000 x 5)]/12 = $110,667Blaze: [($120,000 x 5) + ($105,000 x 5) +($155,000 x 2)]/12 = $119,58310.bCapital: ($112,000 + $119,000)x(10%) = $23,100Salary: ($20,000 + $30,000) = $50,000Total: $23,100 + $50,000 = $73,10011.bAlbion: ($100,000 x 10%) + $20,000 + $24,000 = $54,000Blaze: ($120,000 x 10%) + $30,000 + $24,000 = $66,00012.bInterest: ($500,000 x 10%) = $50,000Salary: ($10,000 + $20,000) = $30,000Bonus: Condition not met = $0Total allocations = $80,000 and over-allocations =$80,000 - $60,000 = $20,00013.bBloom:Interest allocation: $20,000Salary allocation: $10,000Carnes:
+
Interest allocation: $30,000Salary allocation: $20,000There is a total of $80,000 for positive allocations. To bring them down to a $20,000 loss, a residual adjustment of ($100,000) is needed which is allocated ($40,000) to Bloom and ($60,000) to Carnes. After these amounts are assigned to the partners, each partner’s capital account will be reduced by a net $10,000. 14.aB = .1x($121,000 - B) B = $12,100 - .1B 1.1B = $12,100 B = $11,000 15.d16.d17.d18.c19.c20.d
Exercise 1 Requirement 1Goodwill200,000Cesar, capital120,000

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