1) On April 30, 2021, Andy admits Brandy for an interest in his business. On this date, Andy’s capital account shows a balance of $158,400. The following were agreed upon before the formation of the partnership:
- Prepaid expenses of $17,500 and accrued expenses of $5,000 are to be recognized
- 5% of the outstanding accounts receivable of Andy amounting to $100,000 is to be recognized as uncollectible
Brandy is to be credited with a 1/3 interest in the partnership and is to invest cash.
How much cash is to be invested by Brandy?
a. $55,300
b. $82,950
c. $32,950
d. $35,000
2) X, Y, and Z are partners sharing profits and losses in the ratio of 5:3:2. During the year, their investments and withdrawals are as follows: Investment of X, Y, and Z for $200,000, $175,000 and $375,000 respectively. Withdrawals of X, Y, and Z amounting to $125,000, $62,500 and $62,500 respectively. On December 31, 2021, the partners decided to liquidate their business. After exhausting partnership assets, liabilities of $125,000 remain unpaid. X is personally insolvent.
The gain or loss on realization is:
a. 125,000
b. -125,000
c. 625,000
d. -625,000