Students Again

If the partnership agreement does not state that partners share profits and losses according to a certain percentage, explain why they are shared equally.

Since it is not stated in the agreement, the rule is that all profits and losses are shared equally. Some partnerships do not even right up an agreement so it would be easier to divvy up the money equally to each partner. If the sharing was a great issue then it would be a very important aspect of starting the business and would be stated.

When recording non-monetary assets in a partnership, why are they recorded at fair market value?

This is done to value the assets to determine the loss or gain when selling the assets when a partner leaves the firm. It shows what the assets are actually worth when the partner leaves do the loss/gain is up to date and can be distributed.

When a new incoming partner buys out the capital account of an existing partner why is the purchase transaction not recorded on the books of the partnership and only the exchange of the capital accounts?

The transaction is just for interest in the company. The transaction is between the new and old partner and not between the new partner and the firm.

Vivien Monteros has been operating an apartment-locator service as a proprietorship. She and Barrett Schraeder have decided to reorganize the business as a partnership. Monteros's investment in the partnership consists of cash, $8,000; accounts receivable, $10,600; office furniture, $1,600; a small building, $55,000; accounts payable, $3,300; and a note payable to the bank, $10,000.

To determine Monteros's equity in the partnership, she and Schraeder hire an independent appraiser. The appraiser values all the assets and liabilities at their book value except the building, which has a current market value of $71,000. Also there are accured expenses payable of $1,200.

Make an entry on the partnership books to record Monteros's investment.

David Coe and Jen Price form a partnership, investing $40,000 and $80,000, respectively. Determine their shares of net income or net loss for each of the following situations:

a. Net loss is $60,000 and the partners have no written partnership agreement.

Partners have to pay the net loss equally

b. Net income is $90,000, and the partnership agreement states that the partners share profits and losses on the basis of their capital contributions.

David Coe = $30,000; Jen Price = $60,000

c. Net income is $98,000. The first $60,000 is shared on the basis of partner capital contributions. The next $30,000 is based on partner service, with Coe receiving 30% and Price receiving 70%. The remainder is shared equally.

David Coe = $33,000; Jen Price = $65,000

David Coe withdrew cash of $50,000 for personal use, and Jen Price withdrew cash of $40,000 during the year. Using the data from situation (c) in the previous example make journal entries to close (1) the income summary account and (2) the partners' drawing accounts. What was the overall effect on partnership capital?

Grant, Harris, and Isbell are liquidating their partnership. Before selling the noncash assets and paying the liabilities, the capital balances are Grant $23,000; Harris, $20,000; and Isbell, $11,000. The partnership agreement specifies no division of profits and losses.

1. After selling noncash assets and paying the liabilities, the partnership has cash of $54,000. How much cash will each partner receive in final liquidation?

2. After selling the noncash assets and paying the liabilities, the partnership has cash of $45,000. How much cash will each partner receive in final liquidation?