Assignment:
Problem 1: Eaton and Foley have capital balances of $50,000 and $30,000 respectively, at the beginning of the current fiscal year. The articles of partnership provide for an interest allowance at a rate of 8% on the capital balances at the beginning of the year; salary allowances of $18,000 and $12,000 respectively and the remaining net income divided equally. Net income for the current year is $30,000.
a) Divide the net income between the partners.
b) Prepare the necessary journal entry.
Problem 2:
The capital accounts of John Smith and Bill Wilson have balances if $140,000 and $90,000 respectively. Joan Jett and Mary Faber are to be admitted to the partnership. Jett buys one-fifth of Smith’s interest for $30,000 and one-fourth of Wilson’s interest for $20,000. Faber contributes $75,000 cash to the partnership, for which she is to receive an ownership equity of $75,000.
a) Journalize the entries to record the admission of (1) Jett and (2) Faber
b) What are the capital balances of each partner after the admission of the new partners?
Problem 3:
On November 1, 2019, the firm of Sails, Welch and Greenberg decided to liquidate their partnership. The partners have capital balances of $58,000, $72,000 and $10,000 respectively. The cash balance is $32,000, the book values of the noncash assets total $128,000, and liabilities total $20,000. The partners share income and losses in the ratio of 2:2:1.
Instructions:
1. Prepare a statement of partnership liquidation, covering the period November 1-30, 2019, for each of the following assumptions:
a) All of the noncash assets are sold for $156,000 in cash, the creditors are paid and the remaining cash is distributed to the partners.
b) All of the noncash assets are sold for $55,000 in cash, the creditors are paid, the partner with the debit capital balance pays the amount owed to the firm, and the remaining cash is distributed to the partners.
2. Assume the partner with the capital deficiency in part (b) declares bankruptcy and is unable to pay the deficiency. Determine the manner in which the remaining cash is distributed to the two other partners.