Fundamentals of Advanced Accounting
Fundamentals of Advanced Accounting
7th Edition
ISBN: 9781259722639
Author: Joe Ben Hoyle, Thomas Schaefer, Timothy Doupnik
Publisher: McGraw-Hill Education
Question
Book Icon
Chapter 10, Problem 20P

a.

To determine

Determine how the amount of $10,000 is to be divided when profits and losses are allocated in the ratio of 2:3:3:2.

a.

Expert Solution
Check Mark

Explanation of Solution

Calculate the amount of non cash assets:

Noncashassets=Land+Building=$130,000+$120,000=$250,000

Calculate the amount of new capital balance

Particulars Person A Person B Person C Person D
     
Beginning balance $     80,000 $     30,000 $    60,000 $     90,000
Loss on non cash assets $   (50,000) $   (75,000) $  (75,000) $   (50,000)
Adjusted capital balance $     30,000 $   (45,000) $  (15,000) $     40,000

Table: (1)

There is a deficit balance of $45,000 from person B and $15,000 from person C which is to be distributed among the partners in their profit sharing ratio.

Calculate the distribution of loss:

LosssharetopersonAandpersonD=$60,000×24=$30,000

Calculate the ending capital balance of the partners:

Particulars Person A Person D
   
Beginning balance $     30,000 $     40,000
Loss distribution $   (30,000) $   (30,000)
Adjusted capital balance $               - $     10,000

Table: (2)

Person D will receive $10,000 cash.

b.

To determine

Determine how the amount of $10,000 is to be divided when profits and losses are allocated in the ratio of 2:2:3:3.

b.

Expert Solution
Check Mark

Explanation of Solution

Calculate the amount of new capital balance

Particulars Person A Person B Person C Person D
     
Beginning balance $     80,000 $     30,000 $    60,000 $     90,000
Loss on non cash assets $   (50,000) $   (50,000) $  (75,000) $   (75,000)
Adjusted capital balance $     30,000 $   (20,000) $  (15,000) $     15,000

Table: (3)

There is a deficit balance of $20,000 from person B and $15,000 from person C which is to be distributed among the partners in their profit sharing ratio.

Calculate the distribution of loss

LosssharetopersonA=$35,000×25=$14,000LosssharetopersonD=$35,000×35=$21,000

Calculate the ending capital balance of the partners

Particulars Person A Person D
   
Beginning balance $     30,000 $     15,000
Loss distribution $   (14,000) $   (21,000)
Adjusted capital balance $     16,000 $     (6,000)

Table: (4)

Loss of $6,000 will be transferred to person A and the net balance of person A would be

CapitalbalanceofpersonA=$16,000($6,000)=$10,000

Person A will receive the $10,000 cash.

c.

To determine

Determine the amount of money that each partner will receive if profits and losses are allocated in the ratio of 1:3:3:3.

c.

Expert Solution
Check Mark

Explanation of Solution

The value of the building is $120,000 and it is sold for $70,000.

Calculate the amount of loss in the sale of building:

Lossinthesaleofbuilding=$120,000$70,000=$50,000

Calculate the loss distribution to other partners

LosssharetopersonA=$50,000×110=$5,000LosssharetopersonB=$50,000×310=$15,000

Now, loss share to other partners

LosssharetopersonC=$50,000×310=$15,000LosssharetopersonD=$50,000×310=$15,000

Calculate the ending balances of capital

Particulars Person A Person B Person C Person D
     
Beginning balance $     80,000 $     30,000 $    60,000 $     90,000
Loss on non cash assets $     (5,000) $   (15,000) $  (15,000) $   (15,000)
Adjusted capital balance $     75,000 $     15,000 $    45,000 $     75,000

Table: (5)

Calculate the loss of land $130,000:

LosstopersonA=$130,000×110=$13,000LosstopersonB=$130,000×310=$39,000

Now, loss to other partners:

LosstopersonC=$130,000×310=$39,000LosstopersonD=$130,000×310=$39,000

Calculate the ending capital balances:

Particulars Person A Person B Person C Person D
     
Beginning balance $     75,000 $     15,000 $    45,000 $     75,000
Loss on non cash assets $   (13,000) $   (39,000) $  (39,000) $   (39,000)
Adjusted capital balance $     62,000 $   (24,000) $      6,000 $     36,000

Table: (6)

Calculate the loss distribution of person B to other partners:

LosstopersonA=$24,000×17=$3,429LosstopersonCandD=$24,000×37=$10,286

Calculate the new capital balances after allocation:

Particulars Person A Person B Person C Person D
     
Beginning balance $     62,000 $   (24,000) $      6,000 $     36,000
Loss distribution $     (3,428) $     24,000 $  (10,286) $   (10,286)
New capital balance $     58,572 $              - $    (4,286) $     25,714

Table: (7)

Person C is having a loss of $4,286 which is distributed by person A and person D in their profit sharing ratio

Calculate the loss distribution of partners:

LossshareofpersonA=$4,286×14=$1,072LossshareofpersonD=$4,286×34=$3,214

Calculate the ending balance of partners:

Particulars Person A Person D
   
Beginning balance $     58,572 $     25,714
Loss distribution $     (1,072) $     (3,214)
New capital balance $     57,500 $     22,500

Table: (8)

Person A and person D will receive $57,500 and $22,500 of cash respectively.

d.

To determine

Determine the amount of money that the firm receive from selling the land and building to ensure that person C receives a portion if profits and losses are allocated on 1:3:4:2 basis.

d.

Expert Solution
Check Mark

Explanation of Solution

Calculate the amount of money that the firm receive from selling the land and building

Particulars Person A Person B Person C Person D
     
Beginning balance $     80,000 $     30,000 $    60,000 $     90,000
Assumed loss of $100,000 $   (10,000) $   (30,000) $  (40,000) $   (20,000)
New balance $     70,000 $              - $    20,000 $     70,000
Assumed loss of $35,000 $     (5,000)  $  (20,000) $   (10,000)
New balance $     65,000 $              - $             - $     60,000
Assumed loss of $90,000 $   (30,000)   $   (60,000)
New balance $     35,000 $              - $              - $              -

Table: (9)

$35, 000 goes to person A and $90,000 is distributed in the profit sharing ratio of partners of 1:2. Then, $35,000 is distributed among the partners in their profit sharing ratio of 1:4:2 and$100,000 is distributed among the partners in their profit sharing ratio of 1:3:4:2.

The firm has total cash of $125,000 before person C receives any cash. The partnership firm has a cash of $10,000 after paying the liabilities of the firm. The land and building is to be sold for $115,000 for providing a portion to person C.

Working note

Calculate the assumed loss of $100,000:

Particulars Person A Person B Person C Person D
     
Beginning balance $     80,000 $     30,000 $    60,000 $     90,000
Maximum allocated loss $   800,000 $   100,000 $  150,000 $   450,000

Table: (10)

The maximum allocated loss of person B is less of $100,000. Hence, 100,000 is to be taken as assumed loss.

Calculate the assumed loss of $35,000:

Particulars Person A Person C Person D
    
Beginning balance $     70,000 $     20,000 $    70,000
Maximum allocated loss $   490,000 $     35,000 $  245,000

Table: (11)

The maximum allocated loss of person C is less of $35,000. Hence, $35,000 is to be taken as assumed loss.

Calculate the assumed loss of $90,000:

Particulars Person A Person D
   
Beginning balance $     65,000 $     60,000
Maximum allocated loss $   195,000 $     90,000

Table: (12)

The maximum allocated loss of person D is less of $90,000. Hence, $90,000 is to be taken as assumed loss.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Knowledge Booster
Background pattern image
Recommended textbooks for you
Text book image
FINANCIAL ACCOUNTING
Accounting
ISBN:9781259964947
Author:Libby
Publisher:MCG
Text book image
Accounting
Accounting
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:Cengage Learning,
Text book image
Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,
Text book image
Horngren's Cost Accounting: A Managerial Emphasis...
Accounting
ISBN:9780134475585
Author:Srikant M. Datar, Madhav V. Rajan
Publisher:PEARSON
Text book image
Intermediate Accounting
Accounting
ISBN:9781259722660
Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:McGraw-Hill Education
Text book image
Financial and Managerial Accounting
Accounting
ISBN:9781259726705
Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:McGraw-Hill Education