CHAPTER 12 : Accounting for Partnerships

Illustration:
Sara King and Ray Lee are co-partners in the Kingslee Company. The partnership agreement provides for:
(1) salary allowances of $8,400 to King and $6,000 to Lee,
(2) interest allowances of 10% on capital balances at the beginning of the year,
(3) the remainder equally.
Capital balances on January 1 were King $28,000, and Lee $24,000.
In 2020, partnership net income is $22,000. The division of net income is as follows.

Instructions
a.Prepare a schedule showing the distribution of net income.
b.Journalize the allocation of net income.

Prepare a schedule showing the distribution of net income assuming net income is $22,000.
Kingslee Company
Division of Net Income
For the Year Ended December 31, 2020
Sara Ray
Net income $22,000 King Lee Total
Salary allowance $8,400 $6,000 $14,400
Interest allowance on partners’
capital
Sara King ($28,000 × 10%) 2,800
Ray Lee ($24,000 × 10%) 2,400
Total interest allowance 5,200
Total salaries and interest 11,200 8,400 19,600
Remaining income ($22,000 −
$19,600)
Sara King ($2,400 × 50%) 1,200
Ray Lee ($2,400 × 50%) 1,200
Total remainder 2,400
Total division of net income $12,400 $9,600 $22,000

Kingslee records the division of net income as follows.

Dec.31 (dr) Income Summary 22,000
(cr) Sara King, Capital 12,400
(cr) Ray Lee, Capital 9,600

Partnership Financial Statements

Illustration:
(4) Additional investment sara king : 2000
(5) Drawing: Sara king = 7000, Ray Lee = 5000

Kingslee Company
Partners’ Capital Statement
For the Year Ended December 31, 2020
Sara Ray
King Lee Total
Capital, January 1 $28,000 $24,000 $52,000
Add: Additional investment 2,000 2,000
Net income 12,400 9,600 22,000
42,400 33,600 76,000
Less: Drawings 7,000 5,000 12,000
Capital, December 31 $35,400 $28,600 $64,000
rovides for:

Prepare a schedule showing the distribution of net income assuming net income is only $18,000.
Kingslee Company
Division of Net Loss
For the Year Ended December 31, 2020
Sara Ray
Net income $18,000 King Lee Total
Salary allowance $8,400 $6,000 $14,400
Interest allowance on partners’
capital
Sara King ($28,000 × 10%) 2,800
Ray Lee ($24,000 × 10%) 2,400
Total interest allowance 5,200
Total salaries and interest 11,200 8,400 19,600
Remaining income ($18,000 −
$19,600) = deficiency $1,600
Sara King ($1,600 × 50%) - 800.00
Ray Lee ($1,600 × 50%) - 800.00
Total remainder - 1,600.00
Total division of net income $10,400 $7,600 $18,000

Kingslee records the division of net income as follows.

Dec.31 (dr) Income Summary 18,000
(cr) Sara King, Capital 10,400
(cr) Ray Lee, Capital 7,600
 CHAPTER 12 : Accounting for Partnerships

Illustration:
KSW Company is liquidated when its ledger shows the following assets, liabilities, and owners’ equity accounts(amo

Owners’ Equity
Assets
and Liabilities
Equipment HK$35,000 R. Kwok, Capital
Accum. Depr.— - 8,000 P. Shiu, Capital
Equipment
Inventory 18,000 W. Wong, Capital
Accounts Receivable 15,000 Notes Payable
Cash 5,000 Accounts Payable
HK$65,000

Illustration: The partners of KSW Company agree to liquidate the partnership on the following terms:
(1) The partnership will sell its noncash assets to Yam Enterprises for HK$75,000 cash.
(2) The partnership will pay its partnership liabilities. The income ratios of the partners are 3:2:1, respectively.

1 KSW sells assets (accounts receivable, inventory, and equipment) for HK$75,000.
The book value of these assets is HK$60,000 (HK$15,000 + HK$18,000 + HK$35,000 - HK$8,000). KSW realizes a gain

(dr) Cash 75,000

(dr) Accumulated Depreciation–Equipment 8,000
(cr) Accounts Receivable
(cr) Inventory
(cr) Equipment
(cr) Gain on Realization

2 KSW allocates the HK$15,000 gain on realization to the partners based on their income ratios
which are 3:2:1. The entry is:

(dr) Gain on Realization 15,000

(cr) R. Kwok, Capital (HK$15,000 × 3/6)
(cr) P. Shiu, Capital (HK$15,000 × 2/6)
(cr) W. Wong, Capital (HK$15,000 × 1/6)

3 Partnership liabilities consist of Notes Payable HK$15,000 and Accounts Payable HK$16,000.
KSW pays creditors in full by a cash payment of HK$31,000. The entry is:

(dr) Notes Payable 15,000

 (cr) Accounts Payable 16,000
(cr) Cash

4 KSW distributes the remaining cash to the partners on the basis of their capital balances.
(dr) R. Kwok, Capital 22,500
(dr) P. Shiu, Capital 22,800
(dr) W. Wong, Capital 3,700
(cr) Cash
wners’ equity accounts(amounts in thousands).

Owners’ Equity
and Liabilities
HK$15,000
17,800

1,200
15,000
16,000
HK$65,000

owing terms:

are 3:2:1, respectively.

$8,000). KSW realizes a gain of HK$15,000 on the sale. The entry is:

15,000
18,000
35,000
15,000

7,500
5,000
2,500
31,000

49,000
1 Saat likuidasi :
Prior to the distribution of cash to the partners, the accounts in the VUP Company are Cash $24,000; Vogel, Capital
The income ratios are 5:3:2, respectively. VUP Company decides to liquidate the company.
Instructions
Prepare the entry to record (1) Pena’s payment of $8,000 in cash to the partnership and (2) the distribution of cash
Prepare the entry to record (1) the absorption of Pena’s capital deficiency by the other partners and (2) the distribu
Journalize admission of a new partner by purchase of an interest.

2 Saat ada join partner baru

K. Kolmer, C. Eidman, and C. Ryno share income on a 5:3:2 basis. They have capital balances of $34,000, $26,000, a
Instructions
Prepare the journal entry to record the admission of Don Jernigan under each of the following assumptions.
Purchase of 50% of Kolmer’s equity for $19,000.
Purchase of 50% of Eidman’s equity for $12,000.
Purchase of 33?% of Ryno’s equity for $9,000.
Journalize admission of a new partner by investment.
e Cash $24,000; Vogel, Capital (Cr.) $17,000; Utech, Capital (Cr.) $15,000; and Pena, Capital (Dr.) $8,000.

nd (2) the distribution of cash to the partners with credit balances.

er partners and (2) the distribution of cash to the partners with credit balances.

lances of $34,000, $26,000, and $21,000, respectively, when Don Jernigan is admitted to the partnership.

ollowing assumptions.