5Partnership Homework × filef/C:/Users/ashle/Downloads/Partnership FALL%20201 7%

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5Partnership Homework × filef/C:/Users/ashle/Downloads/Partnership FALL%20201 7%20(1).pdf ACC 102 FALL 2017 - PARTNERSHIP HOME WORK -ATTEMPT BOTH QUESTIONS FOR MoNDAY NOV. 20 HH and JR are fashion designers who agreed to form a partnership to open a clothing store. An attorney prepares the partnership agreement, which indicates that assets invested in the partnership will be recorded at their fair market value and that liabilities will be assumed at book value. Q1 The assets contributed by each partner and the liabilities assumed by the partnership follow Assets Cash Accounts receivable Allowance for uncollectible accounts Supplies Equipment Liabilities Accounts payable OR Total 140,000 144,000 14,000 3,000 60,000 60,000 40,000 80,000 104,000 8,000 2,000 40,000 20,000 64,000 18,000 82,000 Prepare the journal entries to record the original investment of H and JR under the following assumptions a. The agreement was silent about allocating capital balances (straight allocation) b. The agreement stated that capital balances will be allocated equally under the bonus method c. The agreement stated that capital balances will be allocated equally under the goodwill method Q2 The partnershlp agreement states that profits and losses will be distributed as follows: 1. HH and JR will each receive an annual salary of $25,000 and $15,000 respectively 2. Each partner receives a 10% interest on their original investments (capital balances under the straight allocation) 3HH gets a bonus of 20% of net income 4. HH and JR share remaining profits and losses in the ratio of 3:2 Calculate the distribution of the income or loss generated under the following assumptions: a) At the end of the first year of operations, a net income of $200,000 was generated b) At the end of the first year of operations, a net income of $90,000 was generated c) At the end of the first year of operations, a net loss of $50,000 was generated. 6:03 PM Type here to search 11/18/2017 1

Explanation / Answer

Question 2 Part a. Net Income is $ 200000 Particulars Amount(in $) Net Income          200,000 Less: Salary for both (25000+15000)           (40,000) Less: Interest on capital                    -   Less: Bonus for HH (20% on 200000)           (40,000) Remaining Profits          120,000 Profit are distributed in the Ratio 3:2 HH's Share            72,000 (120000*3/5) JR's Share            48,000 (120000*2/5) Part b. Net Income is $ 90000 Particulars Amount(in $) Net Income            90,000 Less: Salary for both (25000+15000)           (40,000) Less: Interest on capital                    -   Less: Bonus for HH (20% on 90000)           (18,000) Remaining Profits            32,000 Profit are distributed in the Ratio 3:2 HH's Share            19,200 (90000*3/5) JR's Share            12,800 (90000*2/5) Part c. Net Income is $ 50000 Particulars Amount(in $) Net Income            50,000 Less: Salary for both (25000+15000)           (40,000) Less: Interest on capital                    -   Less: Bonus for HH (20% on 50000)           (10,000) Remaining Profits                    -   Profit are distributed in the Ratio 3:2 HH's Share                    -   (0*3/5) JR's Share                    -   (0*2/5) Note : Interest on Capital is taken as Nil because Capital amount of each partners is not given

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