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

        Kaur’s capital in the partnership ($400,000 ´ 1/5)                                             $  80,000
        Kaur, Capital                                 $  80,000
        Assissi, Capital [$150,000 + 0.55 ´ ($100,000 – $80,000)]                    161,000
        Zahari, Capital [$150,000 + 0.45 ´ ($100,000 – $80,000)]                    159,000
        Total partnership capital               $400,000
15.   Four events dissolve a partnership: withdrawal of a partner, death of a partner, admission of a new partner, and liquidation of a partnership. Note: Students need name only two of these events.
16.   Dissolution is the termination of a partnership. Dissolution may occur because of the admission of a new partner, the withdrawal or death of an existing partner, or the liquidation of the business. Liquidation is the process of going out of business by selling the assets, paying all business debts, and paying any remaining cash to the owners.
17.   The three steps in liquidating a partnership are (1) selling the assets of the entity, (2) paying its liabilities, and (3) paying any remaining cash to the partners.
18.   Ralls and Sauls share (a) gains and losses on the sale of noncash assets based on their profit-and-loss-sharing ratio and (b) the final cash distribution based on their capital balances.
19.   All net income or net loss and all gains and losses on the sale of assets are allocated based on the profit-and-loss-sharing ratio. This includes bonuses to partners when new partners are admitted, capital adjustments arising from asset revaluations when partners withdraw from the business, and capital deficiencies in liquidation. The only allocation that is based on the partners’ capital balances is the disbursement of assets to partners, such as in Step 3 in a liquidation.
20.   When a partner’s capital balance has a debit balance (negative) this is called a capital deficiency. It means that the partner owes money to the partnership.

 
Starters
(5 min.) S12-1
Yes, the partnership form of business organization is appropriate in this situation because a law practice or professional association is not entitled to incorporate and limit liability to the public. Lawyers must use the partnership form of organization. However, each partner could form a personal corporation and have their salary paid to that individual company. The corporation may be able to pay tax at a lower rate than an individual depending on the type of corporation created.
Yes, I would recommend starting out as a partnership to determine if this will be a synergistic arrangement. The partnership is not profitable yet, so there is no tax advantage to incur the cost of incorporating, which can be done later if necessary.
 
(10 min.) S12-2
T & W PARTNERSHIP
Statement of Partners’ Equity
For the Year Ended December 31, 2020
 TarlierWonTotal
Capital, January 1, 2020$45,000$60,000$105,000
Investments10,00010,00020,000
Net income for the year  33,900  22,100  56,000
       Subtotal88,90092,100181,000
Less: Withdrawals  12,000  12,000  24,000
Capital, December 31, 2020$76,900$80,100157,000
 

 (5–10 min.) S12-3
Req. 1
General Journal
DateAccount Titles and ExplanationsPost. Ref.DebitCredit
      
Oct.15Cash 800,000 
  Land 80,000 
  Building 200,000 
  Equipment 90,000 
       Mortgage Payable  110,000
       S. Knoll, Capital  470,000
       E. Wyndon, Capital  590,000
  To set up partnership.   
 
Req. 2
 
Total Assets = $800,000 + $80,000 + $200,000 + $90,000 = $1,170,000