CHAPTER 12

PROBLEMS: SET C
P12-1C The post-closing trial balances of two proprietorships on January 1, 2017, are Prepare entries for formation
presented below. of a partnership and a
balance sheet.
Wonder Company Price Company (LO 1, 2)
Dr. Cr. Dr. Cr.
Cash $ 9,500 $ 6,000
Accounts receivable 15,000 23,000
Allowance for doubtful accounts $ 2,500 $ 4,000
Inventory 28,000 17,000
Equipment 50,000 30,000
Accumulated depreciation—equipment 24,000 13,000
Notes payable 25,000
Accounts payable 20,000 37,000
Wonder, capital 31,000
Price, capital 22,000
$102,500 $102,500 $76,000 $76,000

Wonder and Price decide to form a partnership, Wonder-Price Company, with the follow-
ing agreed upon valuations for noncash assets.
Wonder Company Price Company
Accounts receivable $15,000 $23,000
Allowance for doubtful accounts 3,500 5,000
Inventory 32,000 21,000
Equipment 28,000 18,000

All cash will be transferred to the partnership, and the partnership will assume all the
liabilities of the two proprietorships. Further, it is agreed that Wonder will invest an addi-
tional $3,000 in cash, and Price will invest an additional $13,000 in cash.
Instructions
(a) Prepare separate journal entries to record the transfer of each proprietorship’s assets (a) Wonder, Capital $36,000
and liabilities to the partnership. Price, Capital $26,000
(b) Journalize the additional cash investment by each partner.
(c) Prepare a balance sheet for the partnership on January 1, 2017. (c) Total assets $160,000
P12-2C At the end of its first year of operations on December 31, 2017, the MEY Company’s Journalize divisions of
accounts show the following. net income and prepare a
partners’ capital statement.
Partner Drawings Capital (LO 2)
J. Mesa $12,000 $33,000
L. Elston 9,000 20,000
J. Yaeger 4,000 10,000

The capital balance represents each partner’s initial capital investment. Therefore, net
income or net loss for 2017 has not been closed to the partners’ capital accounts.

Instructions
(a) Journalize the entry to record the division of net income for 2017 under each of the (a) (1) Mesa $20,000
following independent assumptions. (2) Mesa $14,000
(1) Net income is $40,000. Income is shared 5:3:2. (3) Mesa $24,200
(2) Net income is $30,000. Mesa and Elston are given salary allowances of $11,000
and $10,000, respectively. The remainder is shared equally.
(3) Net income is $33,000. Each partner is allowed interest of 10% on beginning cap-
ital balances. Mesa is given an $18,000 salary allowance. The remainder is shared
equally.
(b) Prepare a schedule showing the division of net income under assumption (3) above.
(c) Prepare a partners’ capital statement for the year under assumption (3) above. (c) Mesa $45,200
2 12 Accounting for Partnerships

Prepare entries and schedule P12-3C The partners in Salmon Company decide to liquidate the firm when the balance
of cash payments in sheet shows the following.
liquidation of a partnership
SALMON COMPANY
(LO 3)
Balance Sheet
April 30, 2017
Assets Liabilities and Owners’ Equity
Cash $28,000) Notes payable $16,000
Accounts receivable 19,000) Accounts payable 24,000
Allowance for doubtful accounts (1,000) Salaries and wages
Inventory 28,000) payable 2,000
Equipment 17,000) Melton, capital 23,000
Accumulated depreciation—equipment (10,000) Peters, capital 11,200
Total $81,000) Abbott, capital 4,800
Total $81,000

The partners share income and loss 5:3:2. During the process of liquidation, the transac-
tions below were completed in the following sequence.
1. A total of $43,000 was received from converting noncash assets into cash.
2. Liabilities were paid in full.
3. Cash was paid to the partners with credit balances.
Instructions
(a) Loss on realization $10,000 (a) Prepare a cash distribution schedule.
Cash paid: to Melton (b) Prepare the entries to record the transactions.
$18,000; to Abbott $2,800 (c) Post to the cash and capital accounts.
Journalize admission of a *P12-4C At April 30, partners’ capital balances in DES Company are: Dexter $44,000.
partner under different Emley $26,000, and Sigle $24,000. The income-sharing ratios are 5:3:2, respectively.
assumptions. On May 1, the DESW Company is formed by admitting Watson to the firm as a partner.
(LO 4) Instructions
(a) (1) Watson Capital (a) Journalize the admission of Watson under each of the following independent
$12,000 assumptions.
(2) Watson $13,000 (1) Watson purchases 50% of Sigle’s ownership interest by paying Sigle $9,000 in cash.
(3) Watson $56,000 (2) Watson purchases 50% of Emley’s ownership interest by paying Emley $15,000 in
(4) Watson $24,800 cash.
(3) Watson invests $46,000 cash in the partnership for a 40% ownership interest that
includes a bonus to the new partner.
(4) Watson invests $30,000 in the partnership for a 20% ownership interest, and
bonuses are given to the old partners.
(b) Sigle’s capital balance is $25,500 after admitting Watson to the partnership by invest-
ment. If Sigle’s ownership interest is 15% of total partnership capital, what were (1)
Watson’s cash investment and (2) the total bonus to the old partners?
Journalize withdrawal of *P12-5C On December 31, the capital balances and income ratios in the Elhor Company are
a partner under different as follows.
assumptions.
Partner Capital Balance Income Ratio
(LO 4)
A. Ely $70,000 60%
L. Howe 30,000 30
B. Ross 20,000 10
Instructions
(a) Journalize the withdrawal of Ross under each of the following independent
assumptions.
(a) (1) Howe, Capital $10,000 (1) Each of the remaining partners agrees to pay $13,000 in cash from personal funds
(2) Howe, Capital $20,000 to purchase Ross’s ownership equity. Each receives 50% of Ross’s equity.
(3) Bonus $6,000 (2) Howe agrees to purchase Ross’s ownership interest for $18,000 in cash.
(4) Bonus $9,000 (3) From partnership assets, Ross is paid $26,000, which includes a bonus to the retiring
partner.
(4) Ross is paid $11,000 from partnership assets. Bonuses to the remaining partners
are recognized.
(b) If Howe’s capital balance after Ross’s withdrawal is $32,000, what were (1) the total
bonus to the remaining partners and (2) the cash paid by the partnership to Ross?