Assessment 4 Instructions: Partnerships

Assessment 4: Partnerships

Problem 1

Following is the current balance sheet for a local partnership of attorneys:

Cash and current assets	$66,000	Liabilities	$88,000
Land .	396,000	L, capital	44,000
Building and equipment (net)	220,000	M, capital	88,000
		N, capital	198,000
		O, capital	264,000
Totals	$682,000	Totals	$682,000

The following questions represent independent situations:

a. P is going to invest enough money in this partnership to receive a 25 percent interest. No goodwill or bonus is to be recorded. How much should P invest?

b. P contributes $79,200 in cash to the business to receive a 10 percent interest in the partnership. Goodwill is to be recorded. Profits and losses have previously been split according to the following percentages: L, 30 percent; M, 10 percent; N, 40 percent; and O, 20 percent. After P makes this investment, what are the individual capital balances?

c. P contributes $92,400 in cash to the business to receive a 20 percent interest in the part- nership. Goodwill is to be recorded. The four original partners share all profits and losses equally. After P makes this investment, what are the individual capital balances?

d. P contributes $121,000 in cash to the business to receive a 20 percent interest in the partnership. No goodwill or other asset revaluation is to be recorded. Profits and losses have previously been split according to the following percentages: L, 10 percent; M, 30 percent; N, 20 percent; and O, 40 percent. After P makes this investment, what are the individual capital balances?

e. N retires from the partnership and, as per the original partnership agreement, is to receive cash equal to 125 percent of her final capital balance. No goodwill or other asset revaluation is to be recognized. All partners share profits and losses equally. After the withdrawal, what are the individual capital balances of the remaining partners?

Problem 2

The partnership of Edmonds, Beatty, and Elder has elected to cease all operations and liquidate its business property. A balance sheet drawn up at this time shows the following account balances:

Cash	$105,600	Liabilities	$77,000
Noncash assets	389,400	Frick, capital (60%)	222,200
		Wilson, capital (20%)	61,600
		Clarke, capital (20%)	134,200
Total assets	$495,000	Total liabilities and capital	$495,000

The following transactions occur in liquidating this business:

· Distributed safe capital balances immediately to the partners. Liquidation expenses of $19,800 are estimated as a basis for this computation.

· Sold noncash assets with a book value of $176,000 for $105,600.

· Paid all liabilities.

· Distributed safe capital balances again.

· Sold remaining noncash assets for $96,800.

· Paid liquidation expenses of $15,400.

· Distributed remaining cash to the partners and closed the financial records of the business permanently.

Produce a final schedule of liquidation for this partnership.

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