EXERCISE A summary balance sheet for the McCune, Nall, and Oakley partnership appears belo !

McCune, Nall, and Oakley share profits and losses in a ratio of "#$#%, respecti&ely! Assets Cash In&entory Marketable securities +and ,uildin-.net /otal assets E0uities McCune, capital Nall, capital Oakely, capital /otal e0uities

'

'

%(,((( )",%(( *((,((( %(,((( "%(,((( %*",%((

' '

"*",%(( "((,((( *((,((( %*",%((

/he partners a-ree to admit 1a&ic for a one.fifth interest! /he fair market &alue of partnership land is appraised at '*((,((( and the fair market &alue of in&entory is '23,%((! /he assets are to be re&alued prior to the admission of 1a&ic and there is '*%,((( of -ood ill that attaches to the old partnership! *! ,y ho much ill the capital accounts of McCune, Nall, and Oakley increase, respecti&ely, due to the re&aluation of the assets and the reco-nition of -ood ill4 a! b! c! d! +O" "! /he capital accounts ill increase by '"%,((( each! /he capital accounts ill increase by '$(,((( each! '*2,(((, '"3,(((, and '5%,(((! '"(,(((, '"%,(((, and '$(,(((!

6o much cash must 1a&ic in&est to ac0uire a one.fifth interest4 a! b! c! d! '**3,%((! '*"(,%((! '*5),23%! '*%(,)"%!

$!

7hat ill the profit and loss sharin- ratios be after 1a&ic8s in&estment4 a! b! c! d! *#"#5#"! "#$#%#"! $#5#)#"! 5#)#*(#%!

Albion and ,la9e share profits and losses e0ually! Albion and ,la9e recei&e salary allo ances of '"(,((( and '$(,(((, respecti&ely, and both partners recei&e *(: interest on their a&era-e capital balances! A&era-e capital balances are calculated at the be-innin- of each month balance re-ardless of hen additional capital contributions or permanent ithdra als are made subse0uently ithin the month! 1artners8 dra in-s are not used in determinin- the a&era-e capital balances! /otal net income for "(() is '*"(,(((! ;anuary * capital balances <early dra in-s ='*,%(( a month> 1ermanent ithdra als of capital# ;une $ May " Additional in&estments of capital# ;uly $ October " +O$ 5! ' = Albion *((,((( *2,((( *",((( > = 5(,((( %(,((( *%,((( > ' ,la9e *"(,((( *2,(((

7hat is the ei-hted.a&era-e capital for Albion and ,la9e in "(()4 a! b! c! d! '*((,((( and '*"(,(((! '*(%,$$$ and '*"),))3! '**(,))3 and '**?,%2$! '*"),))3 and '*(%,$$$!

+O$ %!

If the a&era-e capital for Albion and ,la9e from the abo&e information is '**",((( and '**?,(((, respecti&ely, hat ill be the total amount of profit allocated after the salary and interest distributions are completed4 a! b! c! d! '3(,(((! '3$,*((! '3%,(((! '2(,(((!

+O$ )!

If the a&era-e capital balances for Albion and ,la9e are '*((,((( and '*"(,(((, hat ill the final profit allocations for Albion and ,la9e in "(()4

a! b! c! d!

'%(,((( and '3(,(((! '%5,((( and ')),(((! '3(,((( and '%(,(((! '3%,((( and '5%,(((!

A partnership be-an its first year of operations ith the follo in- capital balances# <oun-, Capital# '*5$,((( Eaton, Capital# '*(5,((( /hurman, Capital# '*5$,((( /he Articles of 1artnership stipulated that profits and losses be assi-ned in the follo in- manner# <oun- as to be a arded an annual salary of '"),((( ith '*$,((( salary assi-ned to /hurman! Each partner as to be attributed ith interest e0ual to *(: of the capital balance as of the first day of the year! /he remainder as to be assi-ned on a %#"#$ basis, respecti&ely! Each partner as allo ed to ithdra up to '*$,((( per year! Assume that the net loss for the first year of operations as '"),((( ith net income of '%",((( in the second year! Assume further that each partner ithdre the ma@imum amount from the business each year! ABCES/IOND REEER /O# Ref!*5F(" "(! 7hat as <oun-Gs share of income or loss for the first year4 A> '$,?(( loss! ,> '**,3(( loss! C> '*(,5(( loss! H> '"5,3(( loss! E> '?,*(( loss! Ans er# , Hifficulty# Easy ABCES/IOND REEER /O# Ref!*5F(" "*! 7hat as EatonGs share of income or loss for the first year4 A> '$,?(( loss! ,> '**,3(( loss! C> '*(,5(( loss! H> '"5,3(( loss! E> '?,*(( loss! Ans er# C Hifficulty# Easy [QUESTION] REEER /O# Ref!*5F(" ""! 7hat as /hurmanGs share of income or loss for the first year4 A> '$,?(( loss! ,> '**,3(( loss! C> '*(,5(( loss! H> '"5,3(( loss! E> '?,*(( loss! Ans er# A

Hifficulty# Easy [QUESTION] REEER /O# Ref!*5F(" "$! 7hat as the balance in <oun-Gs Capital account at the end of the first year4 A> '*"(,?((! ,> '**2,$((! C> '*"),*((! H> '2(,)((! E> '***,%((! Ans er# , Hifficulty# Medium [QUESTION] REEER /O# Ref!*5F(" "5! 7hat as the balance in EatonGs Capital account at the end of the first year4 A> '*"(,?((! ,> '**2,$((! C> '*"),*((! H> '2(,)((! E> '***,%((! Ans er# H Hifficulty# Medium [QUESTION] REEER /O# Ref!*5F(" "%! 7hat as the balance in /hurmanGs Capital account at the end of the first year4 A> '*"(,?((! ,> '**2,$((! C> '*"),*((! H> '2(,)((! E> '***,%((! Ans er# C Hifficulty# Medium [QUESTION] REEER /O# Ref!*5F(" ")! 7hat as <oun-Gs share of income or loss for the second year4 A> '*3,*)( income! ,> '5,*)( income! C> '*?,3)( income! H> '*3,"?( income! E> '"2,(2( income! Ans er# E Hifficulty# 6ard [QUESTION] REEER /O# Ref!*5F(" "3! 7hat as EatonGs share of income or loss for the second year4 A> '*3,*)( income! ,> '5,*)( income!

C> '*?,3)( income! H> '*3,"?( income! E> '"2,(2( income! Ans er# , Hifficulty# 6ard [QUESTION] REEER /O# Ref!*5F(" "2! 7hat as /hurmanGs share of income or loss for the second year4 A> '*3,*)( income! ,> '5,*)( income! C> '*?,3)( income! H> '*3,"?( income! E> '"2,(2( income! Ans er# C Hifficulty# 6ard [QUESTION] REEER /O# Ref!*5F(" "?! 7hat as the balance in <oun-Gs Capital account at the end of the second year4 A> '*$$,$2(! ,> '25,3)(! C> '*(%,)?(! H> '*$",2)(! E> '3*,3)(! Ans er# A Hifficulty# Medium [QUESTION] REEER /O# Ref!*5F(" $(! 7hat as the balance in EatonGs Capital account at the end of the second year4 A> '*$$,$2(! ,> '25,3)(! C> '*(%,)?(! H> '*$",2)(! E> '3*,3)(! Ans er# E Hifficulty# Medium [QUESTION] REEER /O# Ref!*5F(" $*! 7hat as the balance in /hurmanGs Capital account at the end of the second year4 A> '*$$,$2(! ,> '25,3)(! C> '*(%,)?(! H> '*$",2)(! E> '3*,3)(! Ans er# H Hifficulty# Medium [QUESTION]

$"! 7hich of the follo in- is not a characteristic of a partnership4 A> /he partnership itself pays no income ta@es! ,> It is easy to form a partnership! C> Any partner can be held personally liable for all debts of the business! H> A partnership re0uires ritten Articles of 1artnership! E> Each partner has the po er to obli-ate the partnership for liabilities! Ans er# H Hifficulty# Easy ABCES/IOND $$! 1artnerships ha&e alternati&e le-al forms includin- all of the follo in- e@cept# A> 1artnership! ,> +imited 1artnership! C> Subchapter S Corporation! H> +imited +iability 1artnership! E> +imited +iability Company! Ans er# C Hifficulty# Easy ABCES/IOND $5! 7hich of the follo in- type of or-ani9ation is classified as a partnership, or similar to a partnership, for ta@ purposes4 =I!> +imited +iability Company =II!> +imited +iability 1artnership =III!> Subchapter S Corporation A> II only! ,> II and III! C> I and II! H> I and III! E> I, II, and III! Ans er# E Hifficulty# Medium $! /he Abrams, ,artle, and Crei-hton partnership be-an the process of li0uidation ith the follo in- balance sheet#

C ash N o n c a s h a s s e ts / o ta l

'

* ) ,( ( ( 5 $ 5 ,( ( (

+ A , C

' 5 % ( ,( ( (

ia b ilitie s b ra m s , c a p ita l a rtle , c a p ita l re i- h to n , c a p ita l / o ta l

' * % ( ,( ( ( 2 ( ,( ( ( ? ( ,( ( ( * $ ( ,( ( ( ' 5 % ( ,( ( (

Abrams, ,artle, and Crei-hton share profits and losses in a ratio of $#"#%! +i0uidation e@penses are e@pected to be '*",(((! If the noncash assets ere sold for '"$5,(((, hat amount of the loss ould ha&e been allocated to ,artle4 A> '5$,"((! ,> '5),2((!

C> '5(,(((! H> '5",5((! E> '5$,*((! Ans er# C Hifficulty# Easy [QUESTION] 5! /he Abrams, ,artle, and Crei-hton partnership be-an the process of li0uidation ith the follo in- balance sheet#

C ash N o n c a s h a s s e ts / o ta l

'

* ) ,( ( ( 5 $ 5 ,( ( (

+ A , C

' 5 % ( ,( ( (

ia b ilitie s b ra m s , c a p ita l a rtle , c a p ita l re i- h to n , c a p ita l / o ta l

' * % ( ,( ( ( 2 ( ,( ( ( ? ( ,( ( ( * $ ( ,( ( ( ' 5 % ( ,( ( (

Abrams, ,artle, and Crei-hton share profits and losses in a ratio of $#"#%! +i0uidation e@penses are e@pected to be '*",(((! /he noncash assets ere sold for '*$5,(((! 7hich partner=s> ould ha&e had to contribute assets to the partnership to co&er a deficit in his or her capital account4 A> Abrams! ,> ,artle! C> Crei-hton! H> Abrams and Crei-hton! E> Abrams and ,artle! Ans er# H Hifficulty# Medium [QUESTION] %! /he Abrams, ,artle, and Crei-hton partnership be-an the process of li0uidation ith the follo in- balance sheet#

C ash N o n c a s h a s s e ts / o ta l

'

* ) ,( ( ( 5 $ 5 ,( ( (

+ A , C

' 5 % ( ,( ( (

ia b ilitie s b ra m s , c a p ita l a rtle , c a p ita l re i- h to n , c a p ita l / o ta l

' * % ( ,( ( ( 2 ( ,( ( ( ? ( ,( ( ( * $ ( ,( ( ( ' 5 % ( ,( ( (

Abrams, ,artle, and Crei-hton share profits and losses in a ratio of $#"#%! +i0uidation e@penses are e@pected to be '*",(((! After the li0uidation e@penses of '*",((( had been paid and the noncash assets sold, Crei-hton had a deficit of '2,(((! Eor hat amount ere the noncash assets sold4 A> '*3(,(((! ,> '")5,(((!

C> '*%2,(((! H> '*5),(((! E> '*2%,(((! Ans er# A Hifficulty# 6ard [QUESTION] )! /he Ieaton, +e is, and Meador partnership had the follo in- balance sheet Just before enterin- li0uidation#

C ash N o n c a s h a s s e ts

'

* ( ,( ( ( $ ( ( ,( ( (

/ o ta l

' $ * ( ,( ( (

+ ia b ilitie s I e a to n , c a p ita l + e is , c a p ita l M e a d o r, c a p ita l / o ta l

' *$ ) 5 2 ' $*

( ( ( ( (

,( ( ( ,( ( ( ,( ( ( ,( ( ( ,( ( (

Ieaton, +e is, and Meador share profits and losses in a ratio of "#5#5! Noncash assets ere sold for '*2(,(((! +i0uidation e@penses ere '*(,(((! Assume that +e is as personally insol&ent and could not contribute any assets to the partnership, hile Ieaton and Meador ere both sol&ent! 7hat amount of cash ould Ieaton ha&e recei&ed from the distribution of partnership assets4 A> '$2,(((! ,> '$(,(((! C> '"5,(((! H> '$5,(((! E> '$*,)((! Ans er# , Hifficulty# 6ard [QUESTION] 3! /he Ieaton, +e is, and Meador partnership had the follo in- balance sheet Just before enterin- li0uidation#

C ash N o n c a s h a s s e ts

'

* ( ,( ( ( $ ( ( ,( ( (

/ o ta l

' $ * ( ,( ( (

+ ia b ilitie s I e a to n , c a p ita l + e is , c a p ita l M e a d o r, c a p ita l / o ta l

' *$ ) 5 2 ' $*

( ( ( ( (

,( ( ( ,( ( ( ,( ( ( ,( ( ( ,( ( (

Ieaton, +e is, and Meador share profits and losses in a ratio of "#5#5! Noncash assets ere sold for '*2(,(((! +i0uidation e@penses ere '*(,(((! Assume that Ieaton as personally insol&ent ith assets of '2,((( and liabilities of ')(,(((! +e is and Meador ere both sol&ent and able to co&er deficits in their capital accounts, if any! 7hat amount of cash could IeatonGs personal creditors ha&e e@pected to recei&e from partnership assets4

A> '$(,(((! ,> '(! C> '%",((( H> '"),((( E> '$5,((( Ans er# E Hifficulty# Medium [QUESTION] 2! /he 6enry, Isaac, and ;acobs partnership as about to enter li0uidation ith the follo inaccount balances#

C ash N o n c a s h a s s e ts / o ta l

'

? ( ,( ( ( $ ( ( ,( ( (

' $ ? ( ,( ( (

+ ia b ilitie s 6 e n ry , c a p ita l Is a a c , c a p ita l ; a c o b s , c a p ita l / o ta l

'

) ( ,( ( ( 2 ( ,( ( ( * * ( ,( ( ( * 5 ( ,( ( ( ' $ ? ( ,( ( (

Estimated e@penses of li0uidation ere '%,(((! 6enry, Isaac, and ;acobs shared profits and losses in a ratio of "#5#5! 7hat amount of cash as a&ailable for safe payments, based on the abo&e information4 A> '$(,(((! ,> '2%,(((! C> '"%,(((! H> '$%,(((! E> '5(,(((! Ans er# C Hifficulty# Easy [QUESTION] ?! /he 6enry, Isaac, and ;acobs partnership as about to enter li0uidation ith the follo inaccount balances#

C ash N o n c a s h a s s e ts / o ta l

'

? ( ,( ( ( $ ( ( ,( ( (

' $ ? ( ,( ( (

+ ia b ilitie s 6 e n ry , c a p ita l Is a a c , c a p ita l ; a c o b s , c a p ita l / o ta l

'

) ( ,( ( ( 2 ( ,( ( ( * * ( ,( ( ( * 5 ( ,( ( ( ' $ ? ( ,( ( (

Estimated e@penses of li0uidation ere '%,(((! 6enry, Isaac, and ;acobs shared profits and losses in a ratio of "#5#5! ,efore li0uidatin- any assets, the partners determined the amount of cash a&ailable for safe payments! 6o should the cash be distributed4 A> in a ratio of *#"#" amon- the partners! ,> '*2,$$$ to 6enry and '*),))3 to ;acobs!

C> in a ratio of *#" bet een 6enry and ;acobs! H> '*%,((( to 6enry and '*(,((( to ;acobs! E> '**,$)5 to 6enry and '*$,)$) to ;acobs! Ans er# H Hifficulty# 6ard [QUESTION] *(! /he 6enry, Isaac, and ;acobs partnership as about to enter li0uidation ith the follo inaccount balances#

C ash N o n c a s h a s s e ts / o ta l

'

? ( ,( ( ( $ ( ( ,( ( (

' $ ? ( ,( ( (

+ ia b ilitie s 6 e n ry , c a p ita l Is a a c , c a p ita l ; a c o b s , c a p ita l / o ta l

'

) ( ,( ( ( 2 ( ,( ( ( * * ( ,( ( ( * 5 ( ,( ( ( ' $ ? ( ,( ( (

Estimated e@penses of li0uidation ere '%,(((! 6enry, Isaac, and ;acobs shared profits and losses in a ratio of "#5#5! ,efore li0uidatin- any assets, the partners determined the amount of cash for safe payments and distributed it! /he noncash assets ere then sold for '*"(,(((, and the li0uidation e@penses of '%,((( ere paid! 6o much of the '*"(,((( ould be distributed to 6enry4 A> '"$,(((! ,> '"5,(((! C> '5(!(((! H> '"3,(((! E> '"2,(((! Ans er# E Hifficulty# 6ard [QUESTION] **! /he follo in- account balances ere a&ailable for the 1erry, Buincy, and Ren0uist partnership Just before it entered li0uidation#

C ash N o n c a s h a s s e ts

'

? ( ,( ( ( $ ( ( ,( ( (

/ o ta l

' $ ? ( ,( ( (

+ ia b ilitie s 1 e rry , c a p ita l B u in c y , c a p ita l R e n 0 u is t, c a p ita l / o ta l

' *3 3 % *( ' $?

( ( ( ( (

,( ,( ,( ,( ,(

( ( ( ( (

( ( ( ( (

1erry, Buincy, and Ren0uist had shared profits and losses in a ratio of "#5#5! +i0uidation e@penses ere e@pected to be '2,(((! All partners ere sol&ent! 7hat ould be the minimum amount for hich the noncash assets must ha&e been sold for, in order for Buincy to recei&e some cash from the li0uidation4 A> any amount in e@cess of '*3%,(((! ,> any amount in e@cess of '**3,(((!

C> any amount in e@cess of '*2$,(((! H> any amount in e@cess of '*?2,))3! E> any amount in e@cess of '*)2,$$$! Ans er# C Hifficulty# 6ard