Horngren’s Accounting, Volume 2, 11th Canadian Edition by Tracie Miller-Nobles Solution manual

 
Req. 4
 
  TurnerWhiteTotal
Capital, January 1, 2021 $         0$         0$          0
Additional Investments 12,00012,00024,000
Net loss   (2,000)(3,500)    (5,500)
Withdrawal of Amber Wilson 600900       1,500
Capital, December 31, 2021 $10,600$  9,400$ 20,000
     
 
 

Challenge Exercise
(20–30 min.) E12-20
Req. 1
AUSTIN AND MUNDY
Balance Sheet
December 31, 2020
Assets  
Cash$  55,000 
Accounts receivable (net)135,000 
Inventory410,000 
Equipment (net)825,000 
Total assets $1,425,000
Liabilities  
Accounts payable$170,000 
Accrued expenses payable20,000 
Notes payable275,000 
Total liabilities $   465,000
Partners’ Equity  
Jim Austin, capital480,000* 
Mike Mundy, capital480,000* 
Total partners’ equity      960,000
Total liabilities and equity $1,425,000
*   Total assets                             –         Total liabilities                             =         Partner capital
    Austin:              $885,000         –         ($120,000 + $10,000 + $275,000)                          =         $480,000
    Mundy:             $540,000         –         ($50,000 + $10,000)                             =         $480,000
 
Note: All amounts are the sum of the current market values of the assets, liabilities, and capital of the two proprietorships. For example, Cash of $55,000 = $30,000 + $25,000 and accounts receivable (net) of $135,000 = $100,000 + $35,000.
 
 
Req. 2  
              Austin............................    $480,000
              Mundy...........................      480,000
              Allen..............................   212,000
              Total.............................. 1,172,000
 
              ¼ of $1,172,000 = $293,000
 
              Therefore, bonus to new partner = $293,000 – $212,000 = $81,000
 
(continued) E12-20
General Journal
Date
2021Account Titles and ExplanationsPost. Ref.DebitCredit
Jan.1Cash 212,000 
  Jim Austin   48,600 
  Mike Mundy   32,400 
       John Allen, Capital  293,000
 
Austin: 48.600 = 0.60 × $81,000
Mundy: 32,400 = 0.40 × $81,000
 
 
 
Req. 3
 
The old partnership agreement with Jim and Mike will have to be dissolved and a new agreement formed to include John. During the formation of the new agreement, a new profit-and-loss-sharing formula will be agreed upon.

Beyond the Numbers
(20-30 min.) BN12-1
Req. 1
Areas of dispute that might be resolved by a partnership agreement (only five are required):
a.     Method of sharing profits and losses by the partners
b.     Withdrawals of assets by the partners