To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Appendix D Reporting and Analyzing Partnerships QUESTIONS Under the circumstances described, the death, bankruptcy, or legal inability of a partner to execute a contract ends a partnership In addition, if a partnership is organized for the purpose of completing a specific business project, the partnership ends when the project is completed If the business for which the partnership was organized cannot be completed, but goes on indefinitely, the partnership may be dissolved at the will of any one of its partners Mutual agency means that each partner is an agent of the partnership and can commit it to contracts that are within the normal scope of its business Yes, partners can limit the right of a partner Such an agreement is binding on members of the partnership It is also binding on outsiders who know of the agreement However, it is not binding on outsiders who not know of the agreement No, he does not have this right A partnership is a voluntary association and partners have the right to select the people with whom they associate as partners If partners agree on the method of sharing incomes, but say nothing of losses, then any losses are shared in the same manner as income The allocation of net income to the partners is reported on the statement of partners' equity Unlimited liability means that the creditors of a partnership have the right to require each partner to be personally responsible for all debts of the partnership All partners in a general partnership have unlimited liability A limited partnership includes both general and limited partners, and the limited partners have no personal liability for partnership debts Also, the general partners assume the management duties of the partnership George's claim is not valid unless the previously agreed upon method of sharing net incomes and losses granted George an annual salary allowance of $25,000 Unless the partnership agreement says otherwise, partners have no claim to a salary allowance in payment for their services 10 No Kay is still liable to her former partners for her share of the losses ©McGraw-Hill Companies, 2008 Solutions Manual, Appendix D 777 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 11 At all times in the accounting history of a partnership (or any organization), assets must equal liabilities plus equity When the assets are converted to cash, any gains or losses are allocated to the capital accounts of the partners; and when creditors' claims are paid, assets and liabilities are reduced by equal amounts Therefore, when the remaining assets are in the form of cash, the amount of cash must equal the claims (equity) of the partners 12 The remaining partners should share the decline in their equities in accordance with their income-and-loss-sharing ratio QUICK STUDIES Quick Study D-1 (10 minutes) a The partnership will need to pay because it is a merchandising firm That is, if the vendor knows nothing to the contrary, the vendor can assume that Leon has the right, because of mutual agency, to bind the firm to contracts for the purchase of merchandise b A public accounting firm is not in the merchandising business Consequently, because the purchase of merchandise to be sold is not within the normal scope of the business of this firm, the vendor has no right to assume Leon is acting as the agent for the partnership Hence, the partnership probably will not have to pay Quick Study D-2 (15 minutes) Stolton Net income Salary allowances Stolton $15,000 Bright Total salary allowances Balance of income Balance allocated equally Stolton 8,500 Bright Total allocated equally Balance of income Shares of the partners $23,500 Bright Total 52,000 $20,000 35,000 17,000 8,500 $28,500 17,000 $ ©McGraw-Hill Companies, 2008 778 Financial Accounting, 4th Edition To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Quick Study D-3 (10 minutes) If Blake is allocated a $100,000 salary allowance and there remains $4,000 to be divided equally, giving Matthai $2,000, then this shows that the partnership must have earned net income of $104,000 Quick Study D-4 (10 minutes) Since Mourlan is a limited partner, he is not personally liable for any unpaid debts of the partnership Therefore, the partnership’s creditors cannot pursue Mourlan’s personal assets Quick Study D-5 (10 minutes) Choi, Capital 10,000 Amal, Capital 10,000 Stein, Capital 20,000 To record admission of Stein by purchase Quick Study D-6 (10 minutes) Cash 40,000 Kwon, Capital 40,000 To record admission of Kwon Quick Study D-7 (15 minutes) Total partnership return on equity = Net Income/Average equity = $25,000 / ($150,000 + $200,000)/2 = $25,000 / $175,000 = 14.3% Howe partner return on equity = Partner net income/Average partner equity = $20,000 / ($100,000 + $140,000)/2 = $20,000 / $120,000 = 16.7% Duley partner return on equity = Partner net income/Average partner equity = $5,000 / ($50,000 + $60,000)/2 = $5,000 / $55,000 = 9.1% ©McGraw-Hill Companies, 2008 Solutions Manual, Appendix D 779 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com EXERCISES Exercise D-1 (15 minutes) Characteristic General Partnerships Life Limited Owners’ liability Unlimited Legal status Not separate from partners Tax status of income Taxed only once Owners’ authority Mutual agency Ease of formation Requires only an agreement Transferability of ownership Difficult to transfer Ability to raise large amounts of capital Low ability ©McGraw-Hill Companies, 2008 780 Financial Accounting, 4th Edition To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Exercise D-2 (20 minutes) a Recommended Organization: Sharif, Henry, and Korb might first consider organizing their business as a general partnership However, a problem for these new graduates is that they not have funds and with no past business experience will probably have trouble getting a business loan Therefore, instead of a partnership, a better course of action is probably to incorporate In this way they might be able to find investors to contribute capital for stock They can structure the financing so that they remain the major stockholders in the company Taxation: As a corporation, any income will be subject to corporate income tax Any dividends paid to the stockholders will also normally be taxed, but at a much lower level Moreover, some lower income taxpayers could potentially pay little or no dividend tax Any salaries that Sharif, Henry, and Korb pay themselves will be a tax-deductible expense for the business Advantages: Several key advantages to the corporate form include its limited liability and the potential to sell more stock if additional funds are needed b Recommended Organization: The two doctors should form a partnership A general partnership will have the disadvantage of unlimited liability so they probably want to consider a limited liability partnership The partnership can borrow funds from the bank to obtain the initial needed capital for the business Taxation: The owners will pay individual taxes on income earned by the partnership but the partnership will not be taxed Advantages: The advantages of the partnership are ease of formation and owner authority c Recommended Organization: Munson should consider setting up a limited partnership Given his real estate expertise, he can manage the day-to-day activities of the partnership and serve as its general partner He can raise the necessary capital by admitting limited partners Taxation: All partners will pay individual taxes on income distributed to them, but the partnership entity will not pay income tax Advantages: The advantages to Milan will be the authority over the partnership that he will have as general partner and the ease of raising capital ©McGraw-Hill Companies, 2008 Solutions Manual, Appendix D 781 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Exercise D-3 (25 minutes) 1a 2008 Mar Cash 82,500 Land 60,000 Building 100,000 Long-Term Note Payable Eckert, Capital Kelley, Capital 92,500 82,500 67,500 To record initial capital investments 1b 2008 Oct 20 Eckert, Withdrawals 34,000 Kelley, Withdrawals 20,000 Cash 54,000 To record partners’ withdrawals 1c 2008 Dec 31 Eckert, Capital 34,000 Kelley, Capital 20,000 Eckert, Withdrawals Kelley, Withdrawals 34,000 20,000 To close withdrawals accounts Dec 31 Income Summary 90,000 Eckert, Capital Kelley, Capital 58,250 31,750 To close Income Summary account.* Capital account balances Eckert Initial investment $ 82,500 Withdrawals (34,000) Share of income* 58,250 Ending balances $106,750 *Supporting calculations Eckert Kelley Net income Salary allowance Eckert $25,000 Total salary allowance Balance of income Interest allowances Eckert (10% on $82,500) 8,250 Kelley (10% on $67,500) $ 6,750 Total interest allowances Balance of income Balance allocated equally Eckert 25,000 Kelley 25,000 Total allocated equally _ _ Balance of income Shares of the partners $58,250 $31,750 Kelley $ 67,500 (20,000) 31,750 $ 79,250 Total $90,000 25,000 65,000 15,000 50,000 $ 50,000 ©McGraw-Hill Companies, 2008 782 Financial Accounting, 4th Edition To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Exercise D-4 (30 minutes) Kramer Plan (1) $160,000 x 1/2 $80,000 Plan (2) ($60,000/$140,000) x $160,000 $68,571 ($80,000/$140,000) x $160,000 $68,571 Plan (3) Net income Salary allowances $50,000 Interest allowances ($60,000 x 10%) 6,000 ($80,000 x 10%) Total salary and interest Balance of income Knox Total $80,000 $160,000 $91,429 $91,429 $ 68,571 91,429 $160,000 $40,000 $160,000 90,000 8,000 Balance allocated equally ($56,000)/2 28,000 28,000 Balance of income Shares of each partner $84,000 $76,000 6,000 8,000 104,000 56,000 56,000 $ ©McGraw-Hill Companies, 2008 Solutions Manual, Appendix D 783 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Exercise D-5 (35 minutes) Kramer Net income Salary allowances $50,000 Interest allowances ($60,000 x 10%) 6,000 ($80,000 x 10%) Total salaries and interest Balance of income Remainder equally ($5,200)/2 (2,600) _ Balance of income Shares each partner $53,400 Net income Salary allowances $50,000 Interest allowances ($60,000 x 10%) 6,000 ($80,000 x 10%) Total salaries and interest Balance of income Remainder equally $(120,800)/2 (60,400) Balance of income _ Shares of each partner $ (4,400) Knox Total $ 98,800 90,000 $ 40,000 6,000 8,000 104,000 (5,200) 8,000 (2,600) _ (5,200) $ $ 45,400 $ 40,000 8,000 (60,400) _ $(12,400) $ (16,800) 90,000 6,000 8,000 104,000 (120,800) 120,800 $ Exercise D-6 (10 minutes) Sept 30 Mandy, Capital 100,000 Brittney, Capital 100,000 To record admission of Brittney ©McGraw-Hill Companies, 2008 784 Financial Accounting, 4th Edition To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Exercise D-7 (25 minutes) Nov Cash 90,000 Madison, Capital 90,000 To record admission of Madison [($510,000 + $90,000) x 15%] Nov Cash 120,000 Madison, Capital Main, Capital First, Capital 94,500 20,400 5,100 To record admission of Madison Supporting computations $510,000 + $120,000 = $630,000 $630,000 x 15% = $94,500 $120,000 - $94,500 = $25,500 $25,500 x 80% = $20,400 $25,500 x 20% = $5,100 Nov Cash 80,000 Main, Capital 6,800 First, Capital 1,700 Madison, Capital 88,500 To record admission of Madison Supporting computations $510,000 + $80,000 = $590,000 $590,000 x 15% = $88,500 $80,000 - $88,500 = $(8,500) $(8,500) x 80% = $(6,800) $(8,500) x 20% = $(1,700) ©McGraw-Hill Companies, 2008 Solutions Manual, Appendix D 785 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Exercise D-8 (15 minutes) Jan 31 Tulip, Capital .60,000 Cash 60,000 To record retirement of Tulip Jan 31 Tulip, Capital .60,000 Holland, Capital* .12,500 Flowers, Capital** 7,500 Cash 80,000 To record retirement of Tulip * (5/8 x $20,000) **(3/8 x $20,000) Jan 31 Tulip, Capital .60,000 Holland, Capital* Flowers, Capital** Cash 18,750 11,250 30,000 To record retirement of Tulip * (5/8 x $30,000) **(3/8 x $30,000) ©McGraw-Hill Companies, 2008 786 Financial Accounting, 4th Edition To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem D-3B (Concluded) Part CXS PARTNERSHIP Statement of Partners’ Equity For Year Ended December 31 Cook Xi Beginning capital balances $ Plus Investments by owners 144,000 Net income Salary allowances 40,000 $ Schwartz $ Total $ 216,000 120,000 480,000 30,000 80,000 Interest allowances 17,280 25,920 14,400 Balance allocated equally (40,000) (40,000) (40,000) Total net income 17,280 15,920 54,400 87,600 Total 161,280 231,920 174,400 567,600 Less partner withdrawals (18,000) (38,000) (24,000) (80,000) Ending capital balance $143,280 $193,920 $150,400 $487,600 Part Dec 31 Income Summary 87,600 Cook, Capital Xi, Capital Schwartz, Capital 17,280 15,920 54,400 To close Income Summary Dec 31 Cook, Capital 18,000 Xi, Capital 38,000 Schwartz, Capital 24,000 Cook, Withdrawals Xi, Withdrawals Schwartz, Withdrawals 18,000 38,000 24,000 To close withdrawals accounts ©McGraw-Hill Companies, 2008 Solutions Manual, Appendix D 803 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem D-4B (50 minutes) Part a) Apr 30 Craig, Capital 606,000 Collin, Capital 606,000 To record admission of Collin b) Apr 30 Craig, Capital 606,000 Cam, Capital 606,000 To record admission of Cam c) Apr 30 Craig, Capital 606,000 Cash 606,000 To record withdrawal of Craig with no bonus d) Apr 30 Craig, Capital 606,000 Cook, Capital* 51,200 Chan, Capital** 204,800 Cash 350,000 To record Craig’s withdrawal and the bonus to old partners * ($606,000 - $350,000) x 1/5 **($606,000- $350,000) x 4/5 e) Apr 30 Craig, Capital 606,000 Accum Deprec.—Manufacturing Equipment 336,000 Cook, Capital* 40,800 Chan, Capital** 163,200 Manufacturing Equipment 538,000 Cash 200,000 To record withdrawal of Craig with bonus to old partners * [$606,000 - ($538,000 - $336,000 + $200,000)] x 1/5 **[$606,000 - ($538,000 - $336,000 + $200,000)] x 4/5 ©McGraw-Hill Companies, 2008 804 Financial Accounting, 4th Edition To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem D-4B (Concluded) Part a) Apr 30 Cash 300,000 Chip, Capital* 300,000 To record admission of Chip * Supporting calculations $606,000 + $148,000 + $446,000 = $1,200,000 ($1,200,000 + $300,000) x 20% = $300,000 Thus, no bonus is received or paid b) Apr 30 Cash 196,000 Craig, Capital ($83,200* x 5/10) 41,600 Cook, Capital ($83,200* x 1/10) 8,320 Chan, Capital ($83,200* x 4/10) 33,280 Chip, Capital 279,200 To record Chip’s admission and bonus * Supporting calculations ($1,200,000 + $196,000) x 20% = $279,200 $196,000 - $279,200 = $(83,200) Thus, a bonus is paid to new partner c) Apr 30 Cash 426,000 Craig, Capital ($100,800* x 5/10) 50,400 Cook, Capital ($100,800* x 1/10) 10,080 Chan, Capital ($100,800* x 4/10) 40,320 Chip, Capital 325,200 To record admission of Chip and bonus to old partners * Supporting calculations ($1,200,000 + $426,000) x 20% = $325,200 $426,000 - $325,200 = $100,800 Thus, old partners receive a bonus ©McGraw-Hill Companies, 2008 Solutions Manual, Appendix D 805 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem D-5B (75 minutes) Note: All entries in this problem are dated Jan 18 (a) (b) (c) (d) Cash 650,000 Equipment Gain on Sale of Equipment 617,200 32,800 Gain on Sale of Equipment .32,800 Lasure, Capital ($32,800 x 2/5) Ramirez, Capital ($32,800 x 1/5) Toney, Capital ($32,800 x 2/5) 13,120 6,560 13,120 Accounts Payable 342,600 Cash 342,600 Lasure, Capital ($300,400 + $13,120) 313,520 Ramirez, Capital ($195,800 + $6,560) 202,360 Toney, Capital ($127,000 + $13,120) 140,120 Cash 656,000 Cash 530,000 Loss on Sale of Equipment .87,200 Equipment 617,200 Lasure, Capital ($87,200 x 2/5) 34,880 Ramirez, Capital ($87,200 x 1/5) .17,440 Toney, Capital ($87,200 x 2/5) 34,880 Loss on Sale of Equipment 87,200 Accounts Payable 342,600 Cash 342,600 Lasure, Capital ($300,400 - $34,880) 265,520 Ramirez, Capital ($195,800 - $17,440) 178,360 Toney, Capital ($127,000 - $34,880) 92,120 Cash 536,000 (a) (b) (c) (d) ©McGraw-Hill Companies, 2008 806 Financial Accounting, 4th Edition To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem D-5B (Concluded) (a) (b) (c) (d) Cash 200,000 Loss on Sale of Equipment 417,200 Equipment 617,200 Lasure, Capital ($417,200 x 2/5) 166,880 Ramirez, Capital ($417,200 x 1/5) 83,440 Toney, Capital ($417,200 x 2/5) 166,880 Loss on Sale of Equipment 417,200 Cash 39,880 Toney, Capital ($127,000 - $166,880) 39,880 Accounts Payable 342,600 Cash 342,600 Lasure, Capital ($300,400 - $166,880) 133,520 Ramirez, Capital ($195,800 - $83,440) 112,360 Cash 245,880 Cash 150,000 Loss on Sale of Equipment 467,200 Equipment 617,200 Lasure, Capital ($467,200 x 2/5) 186,880 Ramirez, Capital ($467,200 x 1/5) 93,440 Toney, Capital ($467,200 x 2/5) 186,880 Loss on Sale of Equipment 467,200 Lasure, Capital ($59,880 x 2/3) 39,920 Ramirez, Capital ($59,880 x 1/3) .19,960 Toney, Capital ($127,000 - $186,880) 59,880 Accounts Payable 342,600 Cash 342,600 Lasure, Capital* 73,600 Ramirez, Capital** 82,400 Cash 156,000 (a) (b) (c) (d) *$300,400 - $186,880 - $39,920 **$195,800 - $93,440 - $19,960 ©McGraw-Hill Companies, 2008 Solutions Manual, Appendix D 807 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Reporting in Action — BTN D-1 The history states that Richard Schulze and a business partner opened the Sound of Music store in St Paul, Minnesota This company eventually grew into Best Buy At least three differences would be immediately apparent between Best Buy’s corporate income statement and a partnership income statement First, in a general partnership, income flows through to the partners to be reported on their individual tax returns Therefore, the income statement for a partnership would not show a line item for income taxes as Best Buy’s does in Appendix A Second, a corporate income statement shows earnings per share figures, whereas a partnership income statement would not report earnings per share given that no stock is outstanding in a partnership Other, less obvious, differences also exist Specifically, the balance sheet for a partnership would not have the following accounts as the Best Buy’s balance sheet reports in Appendix A: Accrued income taxes Preferred stock Common stock Additional paid-in capital Retained earnings We would also expect a separate Capital account to be reported for each partner in the equity section of the balance sheet ©McGraw-Hill Companies, 2008 808 Financial Accounting, 4th Edition To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Comparative Analysis — BTN D-2 Best Buy started in Minnesota in 1937 as the Sound of Music Circuit City started earlier, in Virginia, in 1949 as the Wards Company Best Buy started as a partnership Circuit City started as a sole proprietorship, but the owner, Samuel S Wurtzel, took a partner, Abraham L Hecht, in 1949, the year the company was founded Circuit City (Wards) achieved about $1,000,000 in sales in 1959 Best Buy (Sound of Music) achieved $1,000,000 in sales in 1970 Best Buy (Sound of Music) was publicly traded over the counter in 1969 In 1985, Best Buy had an initial public offering on the NASDAQ Circuit City (Wards) offered stock to the public in 1961 In 1984, the company changed its name to Circuit City and offered its stock on the New York Stock Exchange ©McGraw-Hill Companies, 2008 Solutions Manual, Appendix D 809 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ethics Challenge — BTN D-3 Income allocation per original agreement Maben Salary allowance $ 3,000 Per patient charges 4,100* Totals $ 7,100 *(.10 x 41,000) Orlando Clark Total $ 3,000 12,300** $15,300 $ 3,000 24,600*** $27,600 $ 9,000 41,000 $50,000 **(.30 x 41,000) ***(.60 x 41,000) Income allocation per Clark’s proposal Maben Orlando Clark Total Per patient charges $5,000 $15,000 $30,000 $50,000 (.10 x 50,000) (.30 x 50,000) (.60 x 50,000) The ethical concern here is that Clark has proposed a change to the partnership agreement that appears to be only self-serving It is true that Clark is the group’s largest producer and, therefore, is entitled to the largest income However, Clark’s proposal does not recognize that a good portion of Clark’s income is due to the patient referrals by the other partners If patients are not referred for surgery, then Clark’s income will assuredly decline The original agreement gives some credit through the salary allowance to Maben and Orlando for the referrals A potentially fair compromise would be to study the referral patterns of Maben and Orlando Through analysis, a dollar value can be assigned to the average amount of production generated monthly for Clark through the referrals from the other partners Note that this controversy is not likely to subside until facts are gathered to support the fairest allocation of the partnership income ©McGraw-Hill Companies, 2008 810 Financial Accounting, 4th Edition To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Communicating in Practice — BTN D-4 STUDY NOTES ORGANIZATIONS WITH PARTNERSHIP CHARACTERISTICS I II III IV Limited Partnerships Limited Liability Partnerships S Corporations Limited Liability Companies I Limited Partnerships These organizations are identified in its name with the words "Limited Partnership," or "Ltd.," or "L.P." A limited partnership has two classes of partners, general and limited At least one partner must be a general partner who assumes management duties and unlimited liability for the debts of the partnership The limited partners have no personal liability beyond the amounts they invest in the partnership A limited partnership is managed by the general partner(s) Limited partners have no active role except as specified in the partnership agreement A limited partnership agreement often specifies unique procedures for allocating incomes and losses between general and limited partners The same basic accounting procedures are used for both limited and general partnerships II Limited Liability Partnerships This is identified in its name with the words "Limited Liability Partnership" or by "LLP." This type of partnership is designed to protect innocent partners from malpractice or negligence claims resulting from the acts of another partner When a partner provides service resulting in a malpractice claim, that partner has personal liability for the claim The remaining partners who were not responsible for the actions resulting in the claim are not personally liable for it Most states hold all partners personally liability for other partnership debts Accounting for a limited liability partnership is the same as for a general partnership ©McGraw-Hill Companies, 2008 Solutions Manual, Appendix D 811 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Communicating in Practice (Concluded) III S Corporations Certain corporations with 75 or fewer stockholders can elect to be treated like a partnership for income tax purposes These corporations are called Sub-Chapter S or simply "S" corporations This distinguishes them from other corporations, called Sub-Chapter C or simply "C" corporations "S" corporations provide stockholders with the same limited liability feature as "C" corporations The advantage to an "S" corporation is it doesn't pay income taxes If stockholders work for an "S" corporation, their salaries are treated as expenses of the corporation The remaining income or loss of the corporation is allocated to stockholders for inclusion on their personal tax returns Except for "C" corporations having to account for income tax expenses and liabilities, the accounting procedures are the same for both "S" and "C" corporations IV Limited Liability Companies A new form of business organization is the limited liability company The names of these businesses usually include the words "Limited Liability Company" or an abbreviation such as "LLC" or "LC." This form of business has certain features like a corporation and others like a limited partnership The owners, who are called members, are protected with the same limited liability feature in corporations While limited partners cannot actively participate in the management of a limited partnership, the members of a limited liability company can assume an active management role A limited liability company usually has a limited life For income tax purposes, the IRS usually classifies a limited liability company as a partnership ©McGraw-Hill Companies, 2008 812 Financial Accounting, 4th Edition To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Taking It to the Net — BTN D-5 The account titles given in the equity section of America First Tax Exempt Investors, L.P are: General Partner Beneficial Unit Certificate Holders Unallocated deficit of variable interest parties There are 9,837,928 units with a value of $78,659,842 at December 31, 2004 The largest asset held by America First is Buildings and Improvements with a value of $108,657,651 ©McGraw-Hill Companies, 2008 Solutions Manual, Appendix D 813 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Teamwork in Action — BTN D-6 Income (Loss) Sharing Plan Calculations Baker Warner Rice Total (a) $600,000/3 $200,000 $200,000 $200,000 $ 600,000 (b) $600,000 x ($200,000/$1,000,000) $120,000 $600,000 x ($300,000/$1,000,000) .$180,000 $600,000 x ($500,000/$1,000,000) _ _ Total allocated $120,000 $180,000 $300,000 $300,000 $ 600,000 (c) (d) Net income Salary allowances $ 50,000 $ 60,000 Balance of income Equally($420,000/3) 140,000 140,000 Balance of Income Total Allocated $190,000 $200,000 Net Income Interest allowances: 10% x $200,000 $ 20,000 10% x $300,000 10% x $500,000 Total interest Balance of income Balance allocated equally 166,666 Balance of income _ Shares of partners $186,666 $ 70,000 140,000 $ 600,000 (180,000) 420,000 (420,000) $ $210,000 $ 600,000 $ 30,000 $ 50,000 166,667 _ $196,667 166,667 _ $216,667 (100,000) 500,000 (500,000) $ Team members share solutions Answers will vary by team One additional income sharing basis would be to share income based on time worked in the partnership ©McGraw-Hill Companies, 2008 814 Financial Accounting, 4th Edition To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com BusinessWeek Activity — BTN D-7 According to the author, the general partner will come out the best in the Williams Partners limited partnership, and according to him, the limited partners get the short end of the stick The author states that Williams (the general partner) will receive 63% of the equity for 52% of the total contributions to the partnership The public (the limited partners) put in 48% in cash for a 37% ownership interest The author states that the limited partnership provides higher returns than other investments It is to the general partner’s advantage to keep returns high, so the limited partners benefit as well ©McGraw-Hill Companies, 2008 Solutions Manual, Appendix D 815 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Entrepreneurial Decision — BTN D-8 Lyons, Sandor and their future partners would be wise to construct an agreement that includes the following: a) names (reputations) and contributions b) rights and duties c) income and loss sharing agreement d) withdrawal agreement e) dispute procedures f) admission and withdrawal of new partners g) rights and duties in the event a partner dies The partnership form of business organization will have several advantages for Lyons, Sandor and their partners Three of these include: (a) The partnership form will allow active involvement by all partners (b) The partnership will be relatively easy to form (c) The partnership itself will not pay taxes Several disadvantages exist with the partnership form of organization Three of these include: (a) The greatest disadvantage is that each partner has unlimited liability for the partnership’s debts (b) The life of a partnership is limited and a death or termination by either partner will end the partnership (c) Mutual agency exists for partnerships so an act by one partner can commit or bind the other partner ©McGraw-Hill Companies, 2008 816 Financial Accounting, 4th Edition To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Global Decision — BTN D-9 The company was founded in 1937 as a private corporation with the name of Dixon Studios Limited The shop door could only accommodate six letters, so the company’s name on the door became merely “Dixons” Acquisitions were: Ascott’s (1962) Bennett’s (1964) Stevenage (1967) Wallace Heaton shops (1972) Currys Group (1984) Supasnaps (1986) Silo (1987) Wigfalls (1988) Vision Technology Group (1993) DN Computer Services (1996) Harry Moore, LTD (1997) Byte Computer Superstores LTD (1998) Elkjop ASA (1999) Ei Systems (2000) Genesis Communications (2002) Micro Warehouse (2004) ©McGraw-Hill Companies, 2008 Solutions Manual, Appendix D 817 ... 17,000 8,500 $28,500 17,000 $ ©McGraw-Hill Companies, 2008 778 Financial Accounting, 4th Edition To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com... $60,000)/2 = $5,000 / $55,000 = 9.1% ©McGraw-Hill Companies, 2008 Solutions Manual, Appendix D 779 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com... amounts of capital Low ability ©McGraw-Hill Companies, 2008 780 Financial Accounting, 4th Edition To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com