Excel Spreadsheet. FOor ACCOUNTING GENIUS ONLY

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M6 Assignment

Module 6 Demonstration Problem
Conway and Lawrence form a partnership by combining the assets and liabilities of their respective sole proprietorships. The following are the assets and liabilities of each partner and their market values. (NOTE: I left the partners names the same for this demonstration, so don't confuse this with the actual homework problem!)
Conway Lawrence
Asset Book value Market value Asset Book Value Market value
Cash $15,000 Cash $12,000
Accounts receivable $4,000 $3,000 Equipmnet $45,000 $30,000
Note payable $8,000 Accumulated Depreciation $15,000 NOTE: We do nothing with the accumulated depreciation for the new partnership- this is for
Inventory $28,000 $25,000 Accounts Payable $10,000 Lawrence to deal with on his old company's books, not a concern for us here.
$35,000
Roxanne: Roxanne: Double-click this cell to see the formula for this figure. 		$32,000
Roxanne: Roxanne: Double-click this cell to see the formula for this figure.
Requirements:
1 Journalize the formation of the partnership.
Journal
Accounts Debit Credit
Cash 27,000 Cash placed into the new partnership is the total book value of all cash being provided.
Accounts Receivable 3,000 Accounts Receivable comes from MARKET value, indicating this is the whole amount expected to be received of the receivables.
Inventory 25,000 Inventory comes from the MARKET value, because this is what the partnership would have to pay to repurchase the inventory at this time.
Equipment 30,000 Equipment comes from the MARKET value, because this is what the partnership would have to pay to repurchase the equipment at this time.
Accounts Payable 10,000 Accounts payable comes from its book value, due to what the amount owed is at this time.
Note Payable 8,000 Note payable comes from its book value, due to what the amount owed is at this time.
Conway, Capital 35,000 Conway, Capital is a result of all the assets being brought into the partnership less the liabilities being brought into the partnership by Conway.
Lawrence, Capital 32,000 Lawrence, Capital is a result of all the assets being brought into the partnership less the liabilities being brought into the partnership by Lawrence.
85,000 85,000
Half way through the first year of operations Conway and Lawrence admit Korman to the partnership. Korman buys a 1/2 share for $25,000 in cash.
2 Journalize Korman's admission to the partnership.
Journal
Accounts Debit Credit
Cash 25,000
Korman, Capital 25,000 Korman gains entrance into the partnership simply by "buying in" with cash.
The net income for the first year of oprations was $60,000. After giving Conway a salary allowance of $15,000, the rest of the net income is split evenly among the partners.
3 Prepare an income distribution worksheet. In this step, we separate the amount of net income to go to each partners capital account. If this was a corporation, it would all
Income Distribution just go to Retained Earnings, but since this company is organized as a partnership, we need to separate out how much goes to
Net Income $60,000 each partners capital account.
Conway Korman Lawrence
Salary Allowance 15,000 0 0 15,000 Since Conway is given a salary allowane of 15,000, we take that off the net income being split, leaving 45,000 left to be split among the three partners.
Remainder Split 15,000 15,000 15,000 45,000 60,000 net income - 15,000 salary allowance to Conway = 45,000, divided by 3 partners = 15,000 each for the remainder split.
Total to close to capital accts 30,000 15,000 15,000 60,000 Make sure this total in the last column MATCHES the total amount of net income- this is how we get net income out of the
income summary account, and into the partner's capital accounts! So they must match!
4 Journalize the closing of the income summary accounts to the capital accounts. At this time, Income Summary (a temporary account used to close revenues and expenses in a partnership) has a credit balance of 60,000 for net income. We need to
Journal close that account, so we will DEBIT Income Summary for the amount of net income, and we will CREDIT the amount of each partner's share of that net income
Accounts Debit Credit to their capital accounts based on the amounts calculated in part 3.
Income Summary 60,000
Conway, Capital 30,000
Roxanne: Roxanne: Double-click the cells in the credit column to see where they come from in the chart above.
Korman, Capital 15,000
Lawrence, Capital 15,000
After 5 years of operation Conway, Korma, and Lawrence decide to dissolve their partnership. The following are the account balances before liquidation begins:
Cash 125,000 The equipment is sold for $7,000
Equipment 22,000
Note Payable 8,000 Now the partners have decided its time to part ways and dissolve the
Capital, Conway 61,000 partnership. Follow the steps below to close out the accounting books
Capital,Korman 44,000 and pay out the remaining cash to the partners as per their capital
Capital, Lawrence 34,000 account balances.
147,000 147,000
5 Complete the liquidating worksheet.
Liquidation
Cash Equipment Note payable Conway Korman Lawrence
Beginning Balances 125,000 22,000 8,000 61,000 44,000 34,000 Enter beginning balances from the chart above.
Sale of Equipment 7,000 -22,000 Sale of equipment- We received 7000 in cash, so that increases cash, but we have to decrease equipment for its full book value of 22,000.
Division of Loss on Sale -5,000 -5,000 -5,000 Since we received less cash than book value, we experience a loss. We divide that loss evenly among the partners, and decrease their capital account balances as such. (22000 BV - 7000 cash = 15,000 loss, divided by 3 = 5000 loss each)
Balance After Sale and Division of Loss 132,000 0 8,000 56,000 39,000 29,000 Check for balance in the accounting equation: Assets equal 132,000, Liabilities + Capital accounts = 132,000.
Payment of Note -8,000 -8,000 Now, we pay off the note payable balance by decreasing cash and decreasing note payable for its balance.
Balance After Note Payment 124,000 0 0 56,000 39,000 29,000 Again, use accounting equation to check for balance: Assets = 124,000. Liabilities (0 balance) plus capital account balances = 124,000.
Distribution of cash to ptrs -124,000 -56,000 -39,000 -29,000 Cut a check from the cash account for each partner in the amount of their capital account balance.
Ending Balances 0 0 0 0 0 0 All balances should have an ending amount of 0 at this time. The business is closed, the lights are off. The partnership is over.
The chart in part 5 is great for organizing what happens in the liquidation process, but we still need to journalize those occurrences to get them into the books.
6 Journalize each step of the closing.
Journal
Accounts Debit Credit
Cash 7,000 First, we sold the equipment for 7000 cash, so we record the cash received, the loss incurred, and take the equipment off the books.
Loss on Sale of Equipment 15,000
Equipment 22,000
Conway, Capital 5,000 Then, we record the decrease to the partner's capital accounts due to the loss. Since the loss account needs to be closed, similar to an expense
Korman, Capital 5,000 account, we will decrease the loss account here as we would in the closing process of a normal year.
Lawrence, Capital 5,000
Loss on Sale of Equipment 15,000
Note Payable 8,000 Record payment of the note payable, like any note payment would be recorded.
Cash 8,000
Conway, Capital 56,000 Record the payment of cash to each of the partners based on their account balances.
Korman, Capital 39,000
Lawrence, Capital 29,000
Cash 124,000