Calculation of share of profits to partners

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Reference no: EM1315172

Calculation of share of profits to partners.

1. Cytex Corporation has a foreign subsidiary located in a country experiencing high rates of inflation. Information concerning this country's inflation rate experience is given below.

Change	Annual	rate
Date	Index	In index	Of Inflation
January	1,20X1	100
January	1,20X2	130	30	30/100	30.00%
January	1,20X3	160	30	30/130	23.08%
January	1,20X4	220	60	60/160	37.50%

The inflation rate that is used in determining if the subsidiary is operating in a highly inflationary economy is:

a. 37.50%.

b. 90.58%.

c. 105.00%.

d. 120.00%.

Use the following information for questions 14,15 and 16.

Willis and Rite share profits and losses equally. Willis and Rite receive salary allowances of $20,000 and $30,000, respectively, and both partners receive 10% interest on their average capital balances. Average capital balances are calculated at the beginning of each month balance regardless of when additional capital contributions or permanent withdrawals are made subsequently within the month. Partners' drawings are not used in determining the average capital balances. Total net income for 2003 is $120,000.

	Willis	Rite
January 1 capital balances	$100,000	$120,000
Yearly drawings ($1,500 a month)	18,000	18,000
Permanent withdrawals of capital:
June 3	12,000
May 2		15,000
Additional investments of capital:
July 3	40,000
October 2		50,000

2. What is the weighted-average capital for Willis and Rite in 2003?

a. $100,000 and $120,000

b. $105,333 and $126,667

c. $110,667 and $119,583

d. $126,667 and $105,333

3. If the average capital for Willis and Rite from question 1 is $112,000 and $119,000, respectively, what will be the total amount of profit allocated after the salary and interest distributions are completed?

a. $70,000

b. $73,100

c. $75,000

d. $80,000

4. If the average capital balances for Willis and Rite are $100,000 and $120,000, what will the final profit allocations for Willis and Rite in 2003?

a. $50,000 and $70,000

b. $54,000 and $66,000

c. $70,000 and $50,000

d. $75,000 and $45,000

A summary balance sheet for the Able, Baker, and Charlie partnership appears below. Able, Baker, and Charlie share profits and losses in a ratio of 2:3:5, respectively.

Assets
Cash	$100,000
Inventory	125,000
Marketable securities	200,000
Land	100,000
Building-net	500,000
Total assets	$1,025,000

Equities

Able, capital	$425,000
Baker, capital	400,000
Charlie, capital	200,000
Total equities	$1,025,000

The partners agree to admit Delta for a one-fifth interest. The fair market value of partnership land is appraised at $200,000 and the fair market value of inventory is $175,000. The assets are to be revalued prior to the admission of Delta and there is $30,000 of goodwill that attaches to the old partnership.

5. By how much will the capital accounts of Able, Baker, and Charlie increase, respectively, due to the revaluation of the assets and the recognition of goodwill?

a. The capital accounts will increase by $50,000 each.

b. The capital accounts will increase by $60,000 each.

c. $36,000, $54,000, and $90,000

d. $40,000, $50,000, and $60,000

6. How much cash will Delta have to invest to acquire a one-fifth interest?

a. $235,000

b. $241,000

c. $293,750

d. $301,250

7. What will the profit and loss sharing ratios be after Delta's investment?

a. 1:2:4:2

b. 2:3:5:2

c. 3:4:6:2

d. 4:6:10:5

8. The XYZ partnership provides a 5% bonus to Partner Y that is based upon partnership income, after deduction of the bonus. If the partnership's income is $126,000, how much is Partner Y's bonus allocation?

a. $6,000

b. $6,300

c. $6,615

d. $6,632

Reference no: EM1315172

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