Acc. QA

ACC  309  |  Fall  2014   Final  Exam  |  Part  I  Take-­‐Home  

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    Name__________________________________     The  partnership  of  Lisa  and  Cindy  began  business  on  January  1,  20X7.  Each  partner   was  formerly  a  sole  proprietor  and  contributed  the  following  assets  on  January  1.       Lisa   Cindy   Cash   $60,900   $50,700   Inventories   68,510   0   Land   0   146,222   Equipment   144,286   0     The  above  assets  had  associated  liabilities  as  shown  below,  which  the  partnership   assumed  on  January  1,  20X7.         Lisa   Cindy   Mortgage  -­‐  Land   0   $50,800   Note  Payable  -­‐  Equipment   $21,100   0     Lisa  and  Cindy  agreed  to  share  partnership  income  and  losses  in  the  following   manner:       Lisa   Cindy   Interest  on  beginning  capital  balances   3%   3%   Salaries   $12,200   $12,200   Remainder   60%   40%     Assume  the  following:      

1. Inventory   a. The  new  partnership’s  opening  inventory  is  to  be  valued  by  the  FIFO  

method.     b. Lisa  previously  used  the  LIFO  method.  As  such,  the  LIFO  inventory  

balance  stated  above  represents  85%  of  its  FIFO  value.   2. Land  

a. Based  upon  an  independent  appraisal  of  contributed  assets,  Lisa  and   Cindy  agree  that  the  land’s  current  value  is  approximately  90%  of  the   land’s  historical  cost  as  stated  above  and  recorded  on  Cindy’s  books.  

3. Equipment   a. Based  upon  an  independent  appraisal  of  contributed  assets,  Lisa  and  

Cindy  agree  that  the  equipment’s  current  value  is  approximately  70%   of  the  equipment’s  historical  cost  as  stated  above  and  recorded  on   Lisa’s  books.  

 

ACC  309  |  Fall  2014   Final  Exam  |  Part  I  Take-­‐Home  

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  During  20X7,  the  following  events  occurred:     ITEMS  1-­‐6:  Lisa  and  Cindy’s  accountant  has  already  recorded  the  journal  entries   for  the  following  items  (i.e.  #1-­‐#5).  As  such,  they  have  been  incorporated  into  the   Income  Statement  and/or  Balance  Sheet  provided.  

1. Inventory  was  acquired  at  a  cost  of  $31,000.  At  December  31,  20X7,  the   partnership  owed  $6,300  to  its  suppliers.    

2. Principal  of  $6,900  was  paid  on  the  mortgage.  Interest  expense  incurred  on   the  mortgage  was  $1,900,  all  of  which  was  paid  by  December  31,  20X7.    

3. Principal  of  $3,800  was  paid  on  the  installment  note.  Interest  expense   incurred  on  the  installment  note  was  $1,900,  all  of  which  was  paid  by  Dec  31.    

4. Sales  on  account  amounted  to  $164,500.  At  December  31,  20X7,  customers   owed  the  partnership  $21,300.    

5. Selling  and  general  expenses,  excluding  depreciation,  amounted  to  $34,800.   At  December  31,  20X7,  the  partnership  owed  $6,500  of  accrued  expenses.   Depreciation  expense  was  $6,200.    

6. The  partnership’s  inventory  at  December  31,  20X7,  was  $20,500.     ITEMS  7-­‐8:  Lisa  and  Cindy’s  accountant  has  not  recorded  the  following:  

7. Each  partner  withdrew  $230  each  week  in  anticipation  of  profits.     8. The  partners  allocated  the  net  income  for  20X7  and  closed  the  accounts  (i.e.  

Revenues,  Expenses  and  Drawing  Accounts.  The  Income  Summary  account   was  used  to  close  Revenues  and  Expenses.  Resulting  Net  Income  was   allocated  from  Income  Summary  to  the  partner’s  capital  accounts.    

  Additional  Information     On  January  1,  20X8,  the  partnership  decided  to  admit  Kim  to  the  partnership.  On   that  date,  Kim  invested  $106,420  of  cash  into  the  partnership  for  a  20  percent   capital  interest.  Total  partnership  capital  after  Kim  was  admitted  totaled  $464,000.        Required  (20  points  each)  

a) Prepare  a  summary  of  changes  to  carrying  values  including  a  Net  Increase  or   Decrease  to  Capital.  Round  to  the  nearest  whole  dollar.  

b) Prepare  journal  entries  to  record  the  formation  of  the  partnership  on  Jan  1.   c) Prepare  journal  entries  to  record  items  7  and  8  listed  above  (i.e.  only  those  

that  have  not  been  previously  recorded  by  Lisa  and  Cindy’s  accountant).     Note  that  a  schedule  to  allocate  partnership  net  income  is  required.  

d) Lisa  and  Cindy’s  accountant  has  prepared  an  income  statement  for  the   Partnership  for  the  year  ended  December  31,  20X7  and  a  DRAFT  balance   sheet  for  the  Partnership  at  December  31,  20X7.  However,  Items  7-­‐8  have   now  been  recorded  and  should  be  used  to  calculate  ending  capital  balances   for  Lisa  and  Cindy.  Enter  the  ending  capital  balances  for  Lisa  and  Cindy  and   complete  the  Balance  Sheet.  

e) Prepare  the  journal  entry  for  the  admission  of  Kim  on  January  1,  20X8,  which   includes  a  bonus  allocated  to  Lisa  and  Cindy  in  the  ratio  60:40.  

ACC  309  |  Fall  2014   Final  Exam  |  Part  I  Take-­‐Home  

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  a)  Summary  Of  Changes  To  Carrying  Values  (round  to  the  nearest  whole  dollar)   Increase  (Decrease)  for:   Lisa   Cindy      

   

   

   

   

   

Net  Increase  (Decrease)    

   

  b)  Journal  entries  to  record  the  formation  of  the  partnership  on  January  1,  20X7.   Date   Account   Debit   Credit                                                      

     

     

   

  c)  Required  journal  entries  for  events  that  occurred  during  20X7.     Schedule  to  allocate  partnership  net  income  for  20X7:     Lisa   Cindy   Total                                                             Drawings  that  occurred  during  20X7   Date   Account   Debit   Credit                              

ACC  309  |  Fall  2014   Final  Exam  |  Part  I  Take-­‐Home  

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  Closing  Revenues   Date   Account   Debit   Credit                     Closing  Expenses   Date   Account   Debit   Credit                                             Closing  Income  Summary   Date   Account   Debit   Credit                             Closing  Drawing  Accounts   Date   Account   Debit   Credit                                     e)  Admission  of  Kim  on  January  1,  20X8                                 Date   Account   Debit   Credit                                      

     

ACC  309  |  Fall  2014   Final  Exam  |  Part  I  Take-­‐Home  

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LISA  &  CINDY  PARTNERSHIP   Income  Statement  

For  the  Year  Ended  December  31,  20X7  

     Sales    

$164,500   Less:  Cost  of  Goods  Sold  

             Inventory   $80,600              Purchases    31,000                Goods  Available  for  Sale   $111,600    Less:  Inventory,  December  31    20,500      91,100    

Gross  Profit    

$73,400   Less:  Selling  and  general  expenses    34,800    

 Less:  Depreciation  expense    6,200      41,000     Operating  Income       $32,400   Nonoperating  expense  -­‐  Interest  

   3,800    

Net  Income    

$28,600  

     LISA  &  CINDY  PARTNERSHIP   Balance  Sheet  

At  December  31,  20X7  

     Assets   Cash  

  $163,380  

Accounts  Receivable    

 21,300     Inventory  

   20,500    

Land    

 131,600     Equipment  (net)  

   94,800    

Total  Assets    

 431,580     Liabilities  and  Capital  

Liabilities:      Accounts  Payable    

$6,300   Accured  Expenses  Payable  

   6,500    

Installment  Note  Payable    

 17,300     Mortgage  Payable  

   43,900    

Total  liabilities    

 74,000     Capital:  

   Lisa,  Capital   ?    Cindy,  Capital   ?    Total  capital  

  ?  

Total  Liabilities  and  Capital    

?