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Advanced Accounting Part 1

Partnership Accounting

Computation of adjusted capital of James and Wade


James
Unadjusted capital balances 67,800.00
Agreeed adjustments
1.) Recognition of Goodwill
2.) Increase in inventory 2,000.00
3.) Increase in accrued expense (500.00)
4.) Recognition of doubtful accounts (1,350.00)
5.) Increase in value of equipment 4,000.00
6.) Increase in value of furniture and fixtures 1,000.00
Adjusted capital balances 72,950.00

Capital balances Capital interest


James 25% 72,950.00
Bosh 25% 72,950.00
Wade 50% 145,900.00
Total partnership capital 291,800.00

Computation of Wade additional investment

Agreed capital (50%) 145,900.00


Less: Initial investments 98,775.00
Additional investment 47,125.00

REQUIREMENTS:
A. PARTNERSHIP FORMATION

1.) Adjusted capital of James

2.) Adjusted capital of Wade

3.) Additioanl cash investment of Wade

4.) Total capital of the firm immediately after the formation

5.) Total cash of the new partnership


James 7,500.00
Wade 61,625.00
Bosh 72,950.00

6.) Total liabilities


James (20,700 + 500) 21,200.00
Wade (15,000 + 700) 15,700.00

7.) Total assets


Cash 142,075.00
Accounts receivable - net 47,025.00
Inventory 36,000.00
Furniture and fixtures 33,600.00
Equipment 50,000.00
Goodwill 20,000.00

Alternative solution:
Total capital
Total liabilities
Total assets

B. COMPUTATION OF NET INCOME AND DISTRIBUTION TO PARTNERS

Total depreciation expense for 2013


Depreciable assets 83,600.00
Multiply by: Depreciation rate 12%
Annual depreciation 10,032.00
Multiply by: Period 11/12
Total depreciation 9,196.00

8.) Cost of sales

Beginning inventory 36,000.00


Add: Net purchases 200,000.00
Goods available for sale 236,000.00
Less: Ending inventory 41,000.00

9.) Total operating expenses for 2013

Rent expense (24,000 * 11/12) 22,000.00


Office Salaries (75,000 + 5000) 80,000.00
Office Supplies (6,804 - 1500) 5,304.00
Depreciation expense 9,196.00
Freight out 10,000.00
Insurance expense (9,000 * 3/6) 4,500.00

10.) Net income for the year 2013

Sales (506,000 - 15,000) 491,000.00


Less: Cost of sales 195,000.00
Gross profit 296,000.00
Less: Operating expenses 131,000.00

Computation of bonuses

Net income 165,000.00


Less: Salaries 46,750.00
Interest 47,520.00 94,270.00
Net income after salaries and interest 70,730.00
Net income after salaries, interests and bonus 58,941.67
Total bonus 11,788.33

11.) Jame's bonus

12.) Bosh's bonus

13.) James's share on net income

14.) Wade's share on net income

15.) Bosh's share on net income

Distribution of net income James Wade


Salaries 22,000.00 13,750.00
Interest 12,442.50 22,935.00
Bonus 8,841.25
Remainder (Capital ratio) 14,735.42 29,470.83
Share in the net income 58,019.17 66,155.83

Computation of interest James Wade


Capital balances - beg 72,950.00 145,900.00
Add: Additional investment 15,000.00 10,000.00
Total 87,950.00 155,900.00
Less: Withdrawal 5,000.00 3,000.00
Capital balances before closing 82,950.00 152,900.00
Interest rate 15% 15%
Interest 12,442.50 22,935.00

C. CAPITAL STATEMENT 2013


Ending capital balances
16.) James

17.) Wade
18.) Bosh

James Wade
Capital balance - Feb 1, 2013 72,950.00 145,900.00
Add: Increase in capital
Additional investment 15,000.00 10,000.00
Share in net income 58,019.17 66,155.83
Total 73,019.17 76,155.83
Total 145,969.17 222,055.83
Less: Withdrawal 5,000.00 3,000.00
Capital balance - December 31, 2013 140,969.17 219,055.83

If salaries given to partners are treated as expense:

Computation of bonuses

Net income 118,250.00


Less: Interest 47,520.00
Net income after salaries and interest 70,730.00
Net income after salaries, interests and bonus 58,941.67
Total bonus 11,788.33

James' Bonus 8,841.25


Bosh's Bonus 2,947.08

Distribution of net income James Wade


Interest 12,442.50 22,935.00
Bonus 8,841.25
Remainder (Capital ratio) 14,735.42 29,470.83
Share in the net income 36,019.17 52,405.83

Computation of Ending Capital James Wade


Capital balance - Feb 1, 2013 72,950.00 145,900.00
Add: Increase in capital
Additional investment 15,000.00 10,000.00
Drawings, credit balance (salaries) 22,000.00 13,750.00
Share in net income 36,019.17 52,405.83
Total 73,019.17 76,155.83
Total 145,969.17 222,055.83
Less: Withdrawal 5,000.00 3,000.00
Capital balance - December 31, 2013 140,969.17 219,055.83
Ending capital balances - (Salaries given to the partners are treated as expenses)
19.) James 140,969.17

20.) Wade 219,055.83

21.) Bosh 121,775.00

D. DISSOLUTION OF THE PARTNERSHIP (CHANGE IN THE OWNERSHIP EQUITY)

22.) Total contributed capital after Oden's admission

James Wade
Capital balances before 140,969.17 219,055.83
Purchased interest (43,811.17)
Balances 140,969.17 175,244.67
Investment by Oden
Capital balances after Oden Admission 140,969.17 175,244.67

Total contributed capital 547,486.04

23.) Total agreed capital 547,486.04

24.) Cash invested by Oden 65,686.04

25.) Amount of intangible assets contributed to the dissolution 0

26.) Wade's capital balance after the admission of Oden 175,244.67

27 - 30) New Profit and loss ratio


Old % New % OLD CAP INT
27 James 40 32 25%
28 Wade 30 24 50%
29 Bosh 30 24 25%
30 Oden 20
100 100
Wade
80,400.00

20,000.00

(700.00)
(1,125.00)
200.00
-
98,775.00

72,950.00

98,775.00

47,125.00

291,800.00

142,075.00
36,900.00

328,700.00

291,800.00
36,900.00
328,700.00

195,000.00

131,000.00
165,000.00

11,788.33

8,841.25

2,947.08

58,019.17

66,155.83

40,825.00

Bosh Total
11,000.00 46,750.00
12,142.50 47,520.00
2,947.08 11,788.33
14,735.42 58,941.67
40,825.00 165,000.00

Bosh
72,950.00
10,000.00
82,950.00
2,000.00
80,950.00
15%
12,142.50

140,969.17

219,055.83
121,775.00

Bosh
72,950.00

10,000.00
40,825.00
50,825.00
123,775.00
2,000.00
121,775.00

Bosh Total
12,142.50 47,520.00
2,947.08 11,788.33
14,735.42 58,941.67
29,825.00 118,250.00

Bosh
72,950.00

10,000.00
11,000.00
29,825.00
50,825.00
123,775.00
2,000.00
121,775.00
Bosh Oden Total Partnership Capital
121,775.00
43,811.17
121,775.00 43,811.17 437,988.83
65,686.04
121,775.00 109,497.21 547,486.04

NEW CAP INT


20%
40%
20%
20%