Chapter 5: Partnership

E12-1 Mark Rensing has prepared the following list of statements about partnerships.
1. A partnership is an association of three or more persons to carry on as co-owners of a
business for profit.
2. The legal requirements for forming a partnership can be quite burdensome.
3. A partnership is not an entity for fi nancial reporting purposes.
4. The net income of a partnership is taxed as a separate entity.
5. The act of any partner is binding on all other partners, even when partners perform
business acts beyond the scope of their authority.
6. Each partner is personally and individually liable for all partnership liabilities.
7. When a partnership is dissolved, the assets legally revert to the original contributor.
8. In a limited partnership, one or more partners have unlimited liability and one or more
partners have limited liability for the debts of the firm.
9. Mutual agency is a major advantage of the partnership form of business.
Instructions
Identify each statement as true or false. If false, indicate how to correct the statement.
E12-2 K. Decker, S. Rosen, and E. Toso are forming a partnership. Decker is transferring
$50,000 of personal cash to the partnership. Rosen owns land worth $15,000 and a small
building worth $80,000, which she transfers to the partnership. Toso transfers to the partnership
cash of $9,000, accounts receivable of $32,000, and equipment worth $39,000. The
partnership expects to collect $29,000 of the accounts receivable.
Instructions
(a) Prepare the journal entries to record each of the partners’ investments.
(b) What amount would be reported as total owners’ equity immediately after the investments?
E12-3 Suzy Vopat has owned and operated a proprietorship for several years. On January 1,
she decides to terminate this business and become a partner in the fi rm of Vopat and
Sigma. Vopat’s investment in the partnership consists of $12,000 in cash, and the following
assets of the proprietorship: accounts receivable $14,000 less allowance for doubtful
accounts of $2,000, and equipment $30,000 less accumulated depreciation of $4,000. It is
agreed that the allowance for doubtful accounts should be $3,000 for the partnership. The
fair value of the equipment is $23,500.
Instructions
Journalize Vopat’s admission to the fi rm of Vopat and Sigma.
E12-4 McGill and Smyth have capital balances on January 1 of $50,000 and $40,000,
respectively. The partnership income-sharing agreement provides for (1) annual salaries
of $22,000 for McGill and $13,000 for Smyth, (2) interest at 10% on beginning capital
balances, and (3) remaining income or loss to be shared 60% by McGill and 40% by Smyth.
Instructions
(a) Prepare a schedule showing the distribution of net income, assuming net income is
(1) $50,000 and (2) $36,000.
(b) Journalize the allocation of net income in each of the situations above.
E12-5 Coburn (beginning capital, $60,000) and Webb (beginning capital $90,000) are
partners. During 2017, the partnership earned net income of $80,000, and Coburn made
drawings of $18,000 while Webb made drawings of $24,000.
Instructions
(a) Assume the partnership income-sharing agreement calls for income to be divided 45%
to Coburn and 55% to Webb. Prepare the journal entry to record the allocation of net
income.
(b) Assume the partnership income-sharing agreement calls for income to be divided with
a salary of $30,000 to Coburn and $25,000 to Webb, with the remainder divided 45%
to Coburn and 55% to Webb. Prepare the journal entry to record the allocation of net
inc (c) Assume the partnership income-sharing agreement calls for income to be divided with
a salary of $40,000 to Coburn and $35,000 to Webb, interest of 10% on beginning capital, and
the remainder divided 50%–50%. Prepare the journal entry to record the
allocation of net income.
(d) Compute the partners’ ending capital balances under the assumption in part (c).
E12-6 For National Co., beginning capital balances on January 1, 2017, are Nancy Payne
$20,000 and Ann Dody $18,000. During the year, drawings were Payne $8,000 and Dody
$5,000. Net income was $40,000, and the partners share income equally.
Instructions
(a) Prepare the partners’ capital statement for the year.
(b) Prepare the owners’ equity section of the balance sheet at December 31, 2017.
E12-7 Terry, Nick, and Frank are forming The Doctor Partnership. Terry is transferring
$30,000 of personal cash and equipment worth $25,000 to the partnership. Nick owns land
worth $28,000 and a small building worth $75,000, which he transfers to the partnership.
There is a long-term mortgage of $20,000 on the land and building, which the partnership
assumes. Frank transfers cash of $7,000, accounts receivable of $36,000, supplies worth
$3,000, and equipment worth $27,000 to the partnership. The partnership expects to collect
$32,000 of the accounts receivable.
Instructions
Prepare a classifi ed balance sheet for the partnership after the partners’ investments on
December 31, 2017.
E12-8 Sedgwick Company at December 31 has cash $20,000, noncash assets $100,000,
liabilities $55,000, and the following capital balances: Floyd $45,000 and DeWitt $20,000.
The fi rm is liquidated, and $105,000 in cash is received for the noncash assets. Floyd and
DeWitt income ratios are 60% and 40%, respectively.
Instructions
Prepare a schedule of cash payments.
E12-9 Data for Sedgwick Company are presented in E12-8. Sedgwick Company now
decides to liquidate the partnership.
Instructions
Prepare the entries to record:
(a) The sale of noncash assets.
(b) The allocation of the gain or loss on realization to the partners.
(c) Payment of creditors.
(d) Distribution of cash to the partners.
E12-10 Prior to the distribution of cash to the partners, the accounts in the VUP Company are
Cash $24,000; Vogel, Capital (Cr.) $17,000; Utech, Capital (Cr.) $15,000; and Pena,
Capital (Dr.) $8,000. The income ratios are 5:3:2, respectively. VUP Company decides to
liquidate the company.
Instructions
(a) Prepare the entry to record (1) Pena’s payment of $8,000 in cash to the partnership and
(2) the distribution of cash to the partners with credit balances.
(b) Prepare the entry to record (1) the absorption of Pena’s capital deficiency by the other
partners and (2) the distribution of cash to the partners with credit balances.
*E12-11 K. Kolmer, C. Eidman, and C. Ryno share income on a 5:3:2 basis. They have capital
balances of $34,000, $26,000, and $21,000, respectively, when Don Jernigan is admitted to the
partnership.
Instructions
Prepare the journal entry to record the admission of Don Jernigan under each of the following
assumption some

(a) Purchase of 50% of Kolmer’s equity for $19,000.

(b) Purchase of 50% of Eidman’s equity for $12,000.
(c) Purchase of 331/3% of Ryno’s equity for $9,000.
*E12-12 S. Pagan and T. Tabor share income on a 6:4 basis. They have capital balances of
$100,000 and $60,000, respectively, when W. Wolford is admitted to the partnership.
Instructions
Prepare the journal entry to record the admission of W. Wolford under each of the following
assumptions.
(a) Investment of $90,000 cash for a 30% ownership interest with bonuses to the existing
partners.
(b) Investment of $50,000 cash for a 30% ownership interest with a bonus to the new
partner.
*E12-13 N. Essex, C. Gilmore, and C. Heganbart have capital balances of $50,000, $40,000,
and $30,000, respectively. Their income ratios are 4:4:2. Heganbart withdraws from the
partnership under each of the following independent conditions.
1. Essex and Gilmore agree to purchase Heganbart’s equity by paying $17,000 each from
their personal assets. Each purchaser receives 50% of Heganbart’s equity.
2. Gilmore agrees to purchase all of Heganbart’s equity by paying $22,000 cash from her
personal assets.
3. Essex agrees to purchase all of Heganbart’s equity by paying $26,000 cash from his
personal assets.
Instructions
Journalize the withdrawal of Heganbart under each of the assumptions above.
*E12-14 B. Higgins, J. Mayo, and N. Rice have capital balances of $95,000, $75,000, and
$60,000, respectively. They share income or loss on a 5:3:2 basis. Rice withdraws from the
partnership under each of the following conditions.
1. Rice is paid $64,000 in cash from partnership assets, and a bonus is granted to the
retiring partner.
2. Rice is paid $52,000 in cash from partnership assets, and bonuses are granted to the
remaining partners.
Instructions
Journalize the withdrawal of Rice under each of the assumptions above.
*E12-15 Foss, Albertson, and Espinosa are partners who share profi ts and losses 50%,
30%, and 20%, respectively. Their capital balances are $100,000, $60,000, and $40,000,
respectively.
Instructions
(a) Assume Garrett joins the partnership by investing $88,000 for a 25% interest
with bonuses to the existing partners. Prepare the journal entry to record his
investment.
(b) Assume instead that Foss leaves the partnership. Foss is paid $110,000 with a bonus to
the retiring partner. Prepare the journal entry to record Foss’s withdrawal