Reference no: EM132913068

Question 1 - Partnership Formation - A and B formed a partnership. The following are their contributions:

A B

Cash 200,000 -

Accounts receivable 100,000 -

Inventory 160,000 -

Land 100,000

Building 240,000

Total 460,000 340,000

Note payable 120,000

A, capital 340,000

B, capital 340,000

Total 460,000 340,000

Additional information:

Included in accounts receivable is an account amounting to 40,000 which is deemed uncollectible.

The inventory has an estimated selling price of 200,000 and estimated costs to sell of 20,000.

An unpaid mortgage of 20,000 on the land is assumed by the partnership.

The building is under-depreciated by 50,000.

The building also has an unpaid mortgage amounting to 30,000, but the mortgage is not assumed by the partnership. B agreed to settle the mortgage using his personal funds.

The note payable is stated at face amount. A proper valuation requires the recognition of a 30,000 discount on note payable.

A and B shall share in profits and losses 60% and 40%, respectively.

Requirements -

a. Compute for the adjusted balances in the partners' capital accounts.

b. Assume that a partner's capital shall be increased accordingly by contributing additional cash to bring the partners' capital balances proportionate to their profit or loss ratio. Which partner should provide additional cash and how much is the additional cash contribution?

Question 2 - Partnership Operation - Use the following information for the next three cases:

The partnership agreement of A, B and C stipulates the following:

Partners A and C shall receive annual salaries of 12,000 and 8,000, respectively.

A bonus of 10% of profit after salaries but before deduction of bonus shall be given to Partner A, the managing partner.

Each partner shall receive 10% interest on average capital investments.

Any remaining profit or loss shall be shared as follows: 40% to A and 30% each to B and C.

The average capital investments of partners during the year are as follows:

A 100,000

B 60,000

C 120,000

Case #1: The partnership earns profit of 150,000.

Requirement: Compute for the respective shares of the partners on the partnership profit.

Case #2: The partnership earns profit of 40,000.

Requirement: Compute for the respective shares of the partners on the partnership profit.

Case #3: The partnership incurs loss of 60,000.

Requirement: Compute for the respective shares of the partners on the partnership loss.