Tutorial 6

Question 1

The adjusted trial balance of the Ricci and Napoli Partnership for the year ended December
31, 2019, appears below:
RICCI AND NAPOLI PARTNERSHIP
Adjusted Trial Balance
December 31, 2020
Debit Credit
Current Assets.......................................................................................... 19,000
Plant Assets.............................................................................................. 80,000
Current Liabilities.................................................................................... 7,000
Long-term Debt........................................................................................ 40,000
Ricci, Capital............................................................................................ 20,000
Ricci, Drawings........................................................................................ 4,000
Napoli, Capital......................................................................................... 18,000

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Napoli , Drawings.................................................................................... 7,000
Sales Revenue.......................................................................................... 110,000

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Cost of Goods Sold.................................................................................. 62,000
Operating Expenses................................................................................. 23,000

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The partnership agreement stipulates that a division of partnership net income or net loss is to
be made as follows:
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1. A salary allowance of RM12,000 to Ricci and RM23,000 to Napoli.

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2. The remainder is to be divided equally.

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Instructions
(a) Prepare a schedule which shows the division of net income to each partner.
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(b) Prepare the closing entries for the division of net income and for the drawings accounts
at December 31, 2020.
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Question 2
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The Fig & Olive Co. reports net income of RM24,000. Interest allowances are Fig RM3,000
and Olive RM5,000; partner salary allowances are Fig RM18,000 and Olive RM10,000 and
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the remainder is shared equally.

Instructions
Indicate the division of net income to each partner, and prepare the entry to distribute the net
income.

Question 3

Southern Skies Co. had beginning capital balances on January 1, 2020, as follows: Patty
Sharp RM30,000 and Jim O’Connor RM25,000. During the year, drawings were Sharp
RM15,000 and O’Connor RM8,000. Net income was RM40,000, and the partners share
income equally.

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 Instructions
Prepare the partners’ capital statement for the year.

Question 4

Michelle Hamilton and Bill Rossi decide to form a partnership. Hamilton invests RM35,000
cash and accounts receivable of RM30,000 less allowance for doubtful accounts of RM2,000.
Rossi contributes RM25,000 cash and equipment having a RM6,000 book value. It is agreed
that the allowance account should be RM3,000 and the fair value of the equipment is
RM10,000.

Instructions
Prepare the necessary journal entry to record the formation of the partnership.

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Question 5

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Ron Marden and Tip Baker operate separate auto repair shops. On January 1, 2020, they

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decide to combine their separate businesses which were operated as proprietorships to form
M & B Auto Repair, a partnership. Information from their separate balance sheets is

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presented below:
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Marden Auto Repair Baker Auto
Repair
Cash RM10,000 RM14,000
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Accounts receivable 12,000 10,000

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Allowance for doubtful accounts 1,000 500

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Accounts payable 5,000 6,000

Notes payable — 3,000
Salaries and wages payable 1,000 1,500
Equipment 12,000 24,000
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Accumulated depreciation—equipment 2,000 4,000

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It is agreed that the expected realizable value of Marden’s accounts receivable is RM11,000
and Baker’s receivables is RM7,000. The fair value of Marden’s equipment is RM13,000 and
the value of Baker’s equipment is RM20,000. It is further agreed that the new partnership
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will assume all liabilities of the proprietorships with the exception of the notes payable on
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Baker’s balance sheet which he will pay himself.

Instructions
Prepare the journal entries necessary to record the formation of the partnership.

Question 6

A. Wiggins, L. Stokes, and K. Hayes are forming a partnership. Wiggins is transferring

RM75,000 of personal cash to the partnership. Stokes owns land worth RM25,000 and a
small building worth RM120,000, which she transfers to the partnership. Hayes transfers to
the partnership cash of RM14,000, accounts receivable of RM48,000 and equipment worth
RM28,000. The partnership expects to collect RM45,000 of the accounts receivable.

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 Instructions
(a) Prepare the journal entries to record each of the partners’ investments.
(b) What amount would be reported as total owners’ equity immediately after the
investments?

Question 7

S. Pellah (beginning capital, RM80,000) and M. Berry (beginning capital RM120,000) are
partners. During 2020 the partnership earned net income of RM90,000, and Pellah made
drawings of RM24,000 while Berry made drawings of RM32,000.

Instructions
(a) Assume the partnership income-sharing agreement calls for income to be divided 40% to
Pellah and 60% to Berry. Prepare the journal entry to record the allocation of net income.
(b) Assume the partnership income-sharing agreement calls for income to be divided with a
salary of RM40,000 to Pellah and RM35,000 to Berry, with the remainder divided 40% to

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Pellah and 60% to Berry. Prepare the journal entry to record the allocation of net income.

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(c) Assume the partnership income-sharing agreement calls for income to be divided with a

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salary of RM50,000 to Pellah and RM45,000 to Berry, interest of 10% on beginning

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capital, and the remainder divided 50%-50%. Prepare the journal entry to record the

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allocation of net income. rs e
(d) Compute the partners’ ending capital balances under the assumption in part (c).
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Question 8
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The Jamison and Stephens partnership reports net income of RM50,000. Partner salary
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allowances are Jamison RM18,000 and Stephens RM12,000. Any remaining income is shared
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60:40.

Instructions
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Determine the amount of net income allocated to each partner.

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Question 9

Carraway and Boos have a partnership agreement which includes the following provisions
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regarding sharing net income or net loss:

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1. A salary allowance of RM48,000 to Carraway and RM36,000 to Boos.

2. An interest allowance of 10% on capital balances at the beginning of the year.
3. The remainder to be divided 60% to Carraway and 40% to Boos.
The capital balance on January 1, 2020, for Carraway and Boos was RM90,000 and
RM120,000, respectively. During 2020, the Carraway and Boos Partnership had sales of
RM495,000, cost of goods sold of RM290,000, and operating expenses of RM85,000.

Instructions
Prepare an income statement for the Carraway and Boos Partnership for the year ended
December 31, 2020. As a part of the income statement, include a Division of Net Income to
each of the partners.

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 Question 10

The Zhuzer Company at December 31 has cash RM50,000, noncash assets RM250,000,
liabilities RM138,000, and the following capital balances: Zhu RM112,000 and Zerkel
RM50,000. The firm is liquidated, and RM265,000 in cash is received for the noncash assets.
Zhu and Zerkel income ratios are 60% and 40%, respectively.

Instructions
Prepare the entries to record:
(a) The sale of noncash assets.
(b) The allocation of the gain or loss on liquidation to the partners.
(c) Payment of creditors.
(d) Distribution of cash to the partners.

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