Horngren’s Accounting, Volume 2, 11th Canadian Edition by Tracie Miller-Nobles Solution manual
c. Procedures for settling disputes between the partners
d. Procedures for admitting new partners
e. Procedures for settling up with a partner who withdraws from the business or dies
f. Procedures for liquidating the partnership.
g. Procedures for removing a partner who will not withdraw or retire from the partnership voluntarily.
Req. 2
The unlimited personal liability of a partner for all the liabilities of the business makes it wise to select a partner with more wealth than you. That way, if the partnership falls into debt, your partner can help meet these obligations. If you are richer than your partner, most of the business’s debts could be your responsibility to pay.
Req. 3
To convert her share of partnership assets to cash, Clamath can:
a. Sell her share to existing partners (same as withdrawing from the partnership).
b. Sell her share to an outsider if the remaining partners agree to admit the person. That person will obtain Clamath’s share of the business’s net assets, profits, and losses.
Ethical Issue
(10 min.) EI12-1
Req. 1
Correct entry: Feng Li, Withdrawals 3,000
Inventory................................... 3,000
Req. 2
Li’s action appears unethical because she took merchandise costing $3,000 and did not record it properly. Her entry labels the cost of the inventory as expense. Instead, it was a personal withdrawal. Li appears to be stealing from her partner. She is also reducing the taxes payable to the government illegally.
The owners seem to keep their work, earnings, and withdrawals relatively even. Small, roughly equal withdrawals of inventory for personal use maintain fairness to both owners. However, $3,000 appears significant and should be recorded as a withdrawal. The partners should agree on the value of inventory that could be taken without charge.
Problems
Group A
(15–20 min.) P12-1A
Req. 1
General Journal
Date
2020Account Titles and ExplanationsPost. Ref.DebitCredit
Jan.1Accounts Receivable 20,000
Inventory 62,000
Prepaid Expenses 12,000
Store Equipment 52,000
Accounts Payable 40,000
Vince Sharma, Capital 106,000
To record Sharma’s investment in the partnership.
1Cash 106,000
Klaus Warsteiner, Capital 106,000
To record Warsteiner’s investment in the partnership.
Req. 2
SHARMA AND WARSTEINER
Balance Sheet
January 1, 2020
Assets Liabilities
Cash$ 106,000Accounts payable$ 40,000
Accounts receivable 20,000Partners’ Equity
Inventory62,000Vince Sharma, capital106,000
Prepaid expenses12,000Klaus Warsteiner, capital 106,000
Store equipment 52,000 Total partners’ equity 212,000
Total assets$252,000Total liabilities and equity$252,000
(continued) P12-1A
Req. 3
Sharma and Warsteiner
Partnership Capital Balances
December 31, 2020
SharmaWarsteiner Total
Beginning capital balance$106,000$106,000 $212,000
Allocate income to partners:
Sharma ($432,000 ´ 0.70)302,400