FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Concept explainers

Partnership Accounting
A partnership is a kind of arrangement between two or more people whereby they agree to manage the business operations and share its profits and losses in an agreed ratio between them. The agreement that is drafted and signed by the partners of the firm …
Partner Admission and Withdrawal
A partnership is a kind of arrangement between two or more people whereby they agree to manage the business operations and share its profits and losses in an agreed ratio between them. The agreement that is drafted and signed by the partners of the firm …
Question
nment i A and B form a partnership where A, the limited partner, contributes $505,000 and B, the general partner, contributes no cash. The partnership secures a $2 million (10% interest only) nonrecourse loan and acquires AB Apartments for $2.5 million. Assume that the results from the first year of operations of AB Apartments are as follows: Net operating income Less debt service (interest only) Before-tax cash flow $ 252,000 -200,000 $ 52,000 Assume that tax depreciation the first year is $252,500. The partnership agreement provides that 90 percent of all taxable income, loss, and cash flow from operations is to be allocated to A and 10 percent to B. At resale, taxable gains or losses are to be split 50-50 between A and B, and cash proceeds are distributed first to A in an amount equal to his original investment less any cash distributions previously received, and then split 50-50 between A and B. Saved Required: a. What are the capital account balances for A and B after one year? b. Assume that AB Apartments is sold after year 1 for $3 million with no expenses of sale. How much cash is available (before tax) from sale? c. How much cash would be distributed to A and B upon sale of the property? d. How much capital gain would be allocated to A and B upon sale of the property? e. Calculate the capital account balances for A and B after sale. Required A Complete this question by entering your answers in the tabs below. Required B Required C Required D Required E Help What are the capital account balances for A and B after one year? (Negative amounts should be indicated by a minus sign.) A's Capital account balance B's Capital account balance Save & Exit Check
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Transcribed Image Text:nment i A and B form a partnership where A, the limited partner, contributes $505,000 and B, the general partner, contributes no cash. The partnership secures a $2 million (10% interest only) nonrecourse loan and acquires AB Apartments for $2.5 million. Assume that the results from the first year of operations of AB Apartments are as follows: Net operating income Less debt service (interest only) Before-tax cash flow $ 252,000 -200,000 $ 52,000 Assume that tax depreciation the first year is $252,500. The partnership agreement provides that 90 percent of all taxable income, loss, and cash flow from operations is to be allocated to A and 10 percent to B. At resale, taxable gains or losses are to be split 50-50 between A and B, and cash proceeds are distributed first to A in an amount equal to his original investment less any cash distributions previously received, and then split 50-50 between A and B. Saved Required: a. What are the capital account balances for A and B after one year? b. Assume that AB Apartments is sold after year 1 for $3 million with no expenses of sale. How much cash is available (before tax) from sale? c. How much cash would be distributed to A and B upon sale of the property? d. How much capital gain would be allocated to A and B upon sale of the property? e. Calculate the capital account balances for A and B after sale. Required A Complete this question by entering your answers in the tabs below. Required B Required C Required D Required E Help What are the capital account balances for A and B after one year? (Negative amounts should be indicated by a minus sign.) A's Capital account balance B's Capital account balance Save & Exit Check
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Step 1: Meaning of limited & general partner and working note of before tax cash flow
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Step 2: Calculate Taxable Income:
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Step 3: Calculation Of Capital Account Balance
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Step 4: b. Cash available from sale:
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Step 5: c. Cash that would be distributed on the sale of property A and B
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