Chapter 15

Chapter 15 - Partnerships: Formation, Operation, and Changes in Membership
CHAPTER 15
PARTNERSHIPS: FORMATION, OPERATION, AND CHANGES IN MEMBERSHIP
ANSWERS TO QUESTIONS
Q15-1 Partnerships are a popular form of business because they are easy to form
(informal methods of organization), and because they allow several individuals to
combine their talents and skills in a particular business venture. In addition, partnerships
provide a means of obtaining more equity capital than a single individual can invest and
allow the sharing of risks for rapidly growing businesses. Partnerships are also allowed
to eercise greater freedom in their choice of accounting methods.
Q15-2 !he ma"or provisions of the #niform Partnership $ct (#P$) of %&&' have been
enacted by most states to regulate partnerships operating in those states. !he #P$ %&&'
describes many of the rights of each partner and of creditors during creation, operation,
or liquidation of the partnership.
Q15-3 !he types of items that are typically included in the partnership agreement
include(
a. !he name of the partnership and the names of the partners
b. !he type of business to be conducted by the partnership and the duration of the
partnership agreement
c. !he initial capital contribution of each partner and how future capital contributions
are to be accounted for
d. $ complete discussion of the profit or loss distribution, including salaries, interest
on capital balances, bonuses, limits on withdrawals in anticipation of profits, and
the percentages used to distribute any residual profit or loss
e. Procedures used for changes in the partnership such as methods of admitting
new partners and procedures to be used on the retirement of a partner
f. )ther aspects of operations the partners decide on, such as the management
rights of each partner, election procedures, and accounting methods
Q15-4 (a) *eparate business entity means that the partnership is a legal entity
separate and distinct from its partners. !he partnership can own property in its own
name, can sue, be sued, and can continue as an entity even though the membership of
the partners changes with new admissions or with partner dissociations
(b) +reditors view each partner as an agent of the partnership capable of transacting in
the ordinary course of the partnership business. +reditors may use this reliance unless
the creditors receive a notification that the partner lacks authority for engaging in a
specific type of transaction that would be used between the creditor and that partner.
!he partnership should file a *tatement of Partnership $uthority to specifically state any
limitations of authority of specific partners. !his voluntary statement is filed with the
*ecretary of *tate and the clerk of the county in which the partnership operates. !he
*tatement of Partnership $uthority is sufficient notice to state a partner,s authority for
real estate transactions.
15-1
(c) In the event the partnership fails and its assets are not sufficient to pay its liabilities,
each partner has "oint and several personal liability for the partnership obligations. -ach
partner with a capital account that has a debit balance must make a contribution to the
partnership to reduce the debit balance to zero. !hese contributions are then used to
settle the remaining amounts of the partnership liabilities. If a partner fails to make the
required contribution, then all other partners must make additional contributions, in
proportion to the ratio used to allocate partnership losses, until the partnership
obligations are settled. !hus, a partner can be held legally responsible to make
additional contributions to a partnership in dissolution if one or more other partners fail to
make a contribution to remedy their capital deficits.
Q15-5 $ deficiency in a partner.s capital account would eist when the partner.s share
of losses and withdrawals eceeds the capital contribution and share of profits. $
deficiency is usually eliminated by additional capital contributions.
Q15-6 !he percentage of profits each partner will receive, along with the allocation of
/01,111 profit, is calculated as follows(
Percentage Profit to be
of Profits $llocated $llocation
Partner % 23%4 5 60.0'7 /01,111 5 /%0,111
Partner 6 03%4 5 21.117 /01,111 5 /62,111
Partner 8 43%4 5 88.887 /01,111 5 /61,111
Q15-7 !he choices of capital balances available to the partners include beginning
capital balances, ending capital balances, or an average (usually weighted9average)
capital balance for the period. !he preferred capital balance is the weighted9average
capital balance because this method eplicitly recognizes the time span each capital
level was maintained during the period.
Q15-8 *alaries to partners are generally not an epense of the partnership because
salaries, like interest on capital balances, are widely interpreted to be a result of the
respective investments and are used not in the determination of income, but rather in the
determination of the proportion of income to be credited to each partner.s capital
account. !his treatment is based on the proprietary concept of owners, equity that
interprets salaries to partners as equivalent to a withdrawal in anticipation of profits.
*alaries are sometimes specified in the partnership agreement: however, in larger
partnerships, salaries are typically determined by a partners, compensation committee.
$nd also, under the old partnership law, a partnership was not an independent legal
entity, but rather an aggregation of some of the rights of the individual partners. ;ith the
advent of the #P$ %&&' which defines a partnership as a separate legal entity, a
theoretical argument could be made that salaries and capital interest paid to partners
does cross the entity border and could be accounted for as a business epense. <ew
partnerships need audited financial statements prepared in accordance with =$$P so
the financial statement treatment of partners, salaries has not been a ma"or issue
because the financial reporting for partnerships is more focused on meeting the
information needs of the partners.
15-2
Q15- In most cases a partner,s dissociation does not result in the dissolution and
winding up of the partnership. !he #P$ %&&' provides for a process whereby the
dissociating partner,s interest in the partnership can be purchased by the partnership.
!he buyout price of a dissociated partner,s partnership interest is computed as the
estimated amount that would have been distributable to the dissociating partner if the
assets of the partnership were sold at the greater of the liquidation value or the value
based on the sale of the entire business and the partnership was wound up, including
payment of all partnership liabilities. !here are some specific events that cause
dissolution and winding up of the partnership business. !hese events are covered in
*ection >1% of the #P$ %&&' and will be discussed at length in chapter %0. *tudents
wishing to epand their understanding of dissolution are encouraged to eamine *ection
>1% of the $ct.
Q15-1! !he book value of a partnership is the total value of the capital, which is also
the difference between total assets and total liabilities. !he book value may or may not
represent the market value of the partnership.
Q15-11 !he arguments for the bonus method include preservation of the historical cost
principle and the accounting principles stated in FASB 142 "ASC 35!#. !he arguments
against the bonus method include a necessity for a fair valuation of the partnership
assets and the new partner may dislike having a capital balance less than his or her
investment in the partnership.
15-3
Q15-12 !he new partner.s capital credit is equal to the investment made when (%) the
investment equals the proportionate present book value, (6) the assets of the
partnership are revalued prior to admission of the new partner, or (8) goodwill is
recognized for the present partners. !he new partner.s capital credit is not equal to the
tangible investment made when bonus is recognized or when goodwill is recognized for
the new partner.
Q15-13 $abel.s bonus is /8,111 (/61,111 1.%4) if the bonus is computed as a
percentage of income before the bonus. $abel.s bonus is /6,01>.'1 ?@onus 5
1.%4(/61,111 9 @onus)A if the bonus is computed as a percentage of income after
deducting the bonus.
Q15-14 !he implied fair value of the $@+ partnership is /80,111 (/%6,111 3 1.88888B).
!he entry the $@+ partnership would make upon the admission of +aine follows.
+ash %6,111
=oodwill ?/80,111 9 (/%6,111 C /6%,111)A 8,111
)ther Partners. +apitals 8,111
+aine, +apital %6,111
Q15-15A !he basis of Dorton.s contribution for ta purposes is /8,411 and is calculated
as follows(
/4,111 book value less (/6,111 assumed liability 1.'4) 5 /8,411
!he basis of Dorton.s contribution for =$$P purposes is />,111 and is calculated as
follows(
/%1,111 market value less /6,111 assumed liability 5 />,111
Q15-16B $ "oint venture is a short9term association of two or more parties to fulfill a
specific pro"ect. +orporate "oint ventures are accounted for on the books of the investor
companies by the equity method of accounting for investments in common stock.
15-4
SO$UTIONS TO CASES
C15-1 P%&'()&*+,- A.&))/)('
a. !he partnership agreement should be as specific as possible to avoid later
differences of opinion. In addition, the partnership agreement should be written as a
formal agreement and signed by all partners. !he basic elements of a partnership
agreement should include the following(
%. !he name of the partnership and the names of the partners
6. !he type of business to be conducted and the term, if any, of the
partnership
8. !he initial capital contribution of each partner and the method(s) of
accounting for future capital contributions
2. !he income or loss sharing procedures
4. Procedures for changes in the partnership such as admission of new
partners or retirements of present partners
0. $ny other specific procedures important to the partners
b. *alaries and bonuses to partners are part of the income distribution process
regardless of how they are reported by the partnership. *ome partnerships prefer to
report these within the partnership.s income statement in order to compare the
results of the partnership with other business entities.
c. Eot recording salaries and bonuses to partners in the income statement reflects the
true nature of these items and reports income from the partnership before any
distributions. !hus, the income statement reflects the total profit to be distributed to
the partners.
d. !he partnership agreement should state the following if interest is to be provided on
invested capital(
%. !he capital balance to be used as the base for interest( @eginning of
period, average (simple or weighted) for the period, or ending9of9period
balances.
6. !he rate of interest to be paid, or the basis by which the rate is to be
determined.
8. ;hen interest is to be determined in the profit or loss distribution process.
<or eample, should salaries and bonuses be added to the capital
accounts before interest is computedF
15-5
C15-2 C0/-%&,*0(* 01 B0(2*, G0034,55, %(3 A**)' R)6%52%',0( M)'+03*
G-G) to @=$ Partnership(
!his memo discusses the three alternative methods of accounting for the admission of
Eewt, a new partner. !o state the present positions, @ill favors the bonus method,
=eorge favors the goodwill method, and $nne favors the revaluation of eisting tangible
assets. <irst, all three methods are used in practice to account for the admission of a
new partner.
!he bonus method is a realignment of present partnership capital. Eo additional capital,
beyond the tangible investment of the new partner, is created in the admission process.
*ome partners prefer this approach because it immediately states the proper capital
relationships on the admission of the new partner and does not require the write9up of
assets.
!he goodwill method results in the recognition of goodwill, either the goodwill generated
by the prior partners during the eistence of the old partnership, or the goodwill being
contributed by the new partner. =oodwill is sub"ect to an impairment test under the
provisions of *tatement of <inancial $ccounting *tandards Eo. %26, H=oodwill and )ther
Intangible $ssetsI (FASB 1427 ASC 35!#. $ny future impairment loss recognitions will
affect all partners, capital accounts in proportion to their profit and loss sharing ratios in
the future periods as goodwill impairments are recognized. If new partners are allowed
into the partnership, or a present partner withdraws, the effect on each partner.s capital
account will be different than if the bonus method is used. Eew partners will have to
share in the write9off of goodwill, even goodwill created before a new partner.s
admission.
!he revaluation of eisting assets could be done under either of the two above cases.
!his provides for the proper recognition of the assets and the distribution of any holding
gain to the partners who were part of the partnership while the market increase took
place. <or eample, the assets could be revalued to their market value on the basis of
appraisals and then the bonus or goodwill method could be used. !his would preclude a
new partner from sharing in the holding gain that was appreciated before the new
partner.s admission.
!he final decision must be made by the partners. $ll partners should agree to the
specific method, or methods, to be used to account for the admission of Eewt. !he
decision should be formalized, written, and signed by all partners.
15-6
C15-3 U(,10&/ P%&'()&*+,- A8' I**2)*
!his solution uses the #niform Partnership $ct of %&&' (#P$ %&&') for its references.
!his $ct is available on the ;orld ;ide ;eb and can be found using most internet
search engines.
a. *ection 81% of the #P$ %&&' specifies that every partner does have the right to act as
an agent of the partnership for carrying on in the ordinary course the partnership
business, unless the partner has in fact no authority to act for the partnership in the
particular manner, and the person with whom the partner is dealing has knowledge of
the fact that the partner has no such authority.
b. *ection 810 of the #P$ %&&' specifies that a new partner is not personally liable for
any partnership obligation incurred before the person,s admission as a partner. @ut, the
new partner may still lose the capital contribution made to be admitted to the
partnership. !he key point is that the new partner is not at risk beyond the capital
contribution made for admission
c. *ection 218 of the #P$ %&&' specifies that each partner, their agents and attorneys,
may inspect the partnership,s books and records, and copy any of them, during normal
business hours.
d. *ection 210 of the #P$ %&&' specifies that if the initial term of the partnership is
completed, and the partnership continues, the rights and duties of the partners remain
the same but the partnership is now viewed as a partnership at will. $ partnership at will
means that the partners are not committing to a term of time or to a pro"ect. $ partner in
a partnership at will has more legal protection from possible damages from the other
partners if he or she wishes to dissociate from the partnership. $ new partnership
agreement is not needed for the continuation, but is a good idea to make sure that all
continuing partners are in agreement with the ongoing partnership efforts.
e. ;hile it is very easy to form a partnership, it is not easy to simply leave a partnership.
*ections 01% through 018 of the #P$ %&&' discuss a partner,s dissociation and its effect
on the partnership. $ partner epressing the request to no longer be in the partnership
may be sub"ect to damages from a wrongful dissociation. !his suggests that the initial
partnership agreement should include any specific provisions on resignations of partners
if the partners feel the #P$,s guidelines are not sufficient for their partnership.
f. !he items to be included in the partnership agreement are dependent upon the wishes
of the initial partners. !he partnership agreement should include any items that the
partners want to reach agreement on as a basis of the partnership, its operations, and its
possible future dissolution. It is better to have agreement on many of the difficult items
Hup frontI rather than ignoring them and then having them turn into large problems later
on. If an item is not included in the partnership agreement, then the state,s laws on
partnerships regulate the rights and responsibilities of the partners and the rights of
third9parties, including creditors. !here are some nonwaivable provisions of the #P$
%&&' as presented in *ection %18 of the $ct. $ partnership agreement may not reduce or
change any of the rights and responsibilities stated in *ection %18.
15-7
C15-4 R)6,)4,(. '+) A((2%5 R)-0&' 01 % $,/,')3 P%&'()&*+,-
Jiverside now files under its parent. $s a result, the most recent year available is 611'.
Dowever, the following answers are based on the 6110 %1K of the limited partnership.
a. Items % and 6 of the 6110 %19K*@ state that Jiverside Park $ssociates LP is an operator
of apartment buildings (*I+ 04%8). !he entity was formed on Gay %2, %&>0, and it
operates and holds an investment in the Jiverside Park apartment comple located in
<airfa +ounty, Mirginia. !here are %,66& units in the apartment comple.
b. Items % and 6 state that the general partner is $IG+)3Jiverside Park $ssociates =P,
LL+. $IG+) is the abbreviation for $partment Investment and Ganagement +ompany.
$IG+) =P is a wholly owned subsidiary of $IG+)3@ethesda, an affiliate of $IG+)
which is a publicly traded real estate investment trust. Initially, the general partner made
a capital contribution of /&& and an additional /2',486,011 in capital was raised by the
sale of 400 units of limited partnership interest. !he general partner, or agents retained
by the general partner, performs management and administrative services for the limited
partnership.
c. Item %% states that $IG+) Properties LP and $IG+) IPLP, LP, both affiliates of $IG+),
together own 8>8.2% of the 400 units of limited partnership interest, or 0'.'2 percent of
those outstanding. !his means that the general partner and its affiliates are the ma"ority
owners of the limited partnership.
d. Item ' includes the financial statements and footnotes. !he Necember 8%, 6110, balance
sheet reports partners, deficits in the following amounts (in thousands)( =eneral partner,
/(%,4%1): and Limited partners, /(61,08>), for a total partner deficit of /(66,%2>). !he
deficits are a result of total liabilities, particularly mortgage notes, eceeding total assets.
!he *tatements of +hanges in Partners, Neficits show that the partners, capital accounts
were initially /2',488,111 but have been decreased because of operating losses.
$ deficit in partnership capital could also arise if cash distributions to partners eceeded
income. <or many limited partnerships, the investors receive a share of operating losses
that they can report on their own income taes, and receive cash distributions in ecess
of the losses. In 6114 and 6110, the partnership did not make any cash distributions to
the partners, but the %1Ks for prior years show that the partners received cash
distributions in ecess of the loss for those years. !his is typical for real estate entities
and is one of the main reasons that investors acquire the limited partnership units of
these entities. !he real estate assets provide the collateral for mortgages payable and
the partners do not have to provide much in investment capital once the mortgage is
obtained.
e. In the 6110 %19K*@, Eote -, in Item '. <inancial *tatements, reports that the affiliates of
the general partner charged the partnership for reimbursement of administrative
epenses in the amounts of /%,%4',111 and /4&4,111 for the years 6110 and 6114,
respectively. !he limited partnership has no employees and depends on the general
partner and its affiliates for management and administration of the partnership,s
activities. $n analysis of these costs shows the following(
15-8
C15-4 (continued)
I')/ 2!!6 2!!5
!otal amount charged to partnership by affiliates /%,%4',111
/4&4,111
Less amount capitalized to capital improvements ('>,111) (%1,111)
Less amount capitalized to redevelopment pro"ect (4'1,111) (%62,111)
-quals the amount charged to administrative epenses / 41&,111 /20%,111

!he *tatements of )perations report the /41&,111 and /20%,111 in general and
administrative epenses, along with some other costs of the partnership. !he
capitalized costs are added to the appropriate asset in Investment property.
f. In the 6110 %19K*@, Eote $ of Item ', <inancial *tatements, reports that,
HProfits, losses and cash flow from normal operations are allocated 87 to the
=eneral Partner and &'7 to the limited partners. $fter distribution of certain priority
items, Partnership residuals will be distributed 647 to the =eneral Partner and '47
to the limited partners.I
!his profit and loss allocation ratio is consistent with the fact that the limited partners
contributed virtually all the initial financing. !he affiliates acquired a total of 0'.'2 percent
of the limited partnership units and these affiliates are indirectly controlled by $IG+),
the general partner.
15-
C15-5 D)1,(,(. P%&'()&*9 A2'+0&,':
!)( +athy
J-( $uthority of partners to engage in transactions
Oour partnership will be regulated by our state,s laws on partnership. )ur state has enacted
the provisions of the #niform Partnership $ct of %&&' (#P$ %&&') which is the most recent
model act on partnership laws. !he #P$ %&&' states, in its *ection 81%, that,
H-ach partner is an agent of the partnership for the purpose of its business. $n act of a
partner, including the eecution of an instrument in the partnership name, for apparently
carrying on in the ordinary course the partnership business or business of the kind
carried on by the partnership binds the partnership, unless the partner had no authority
to act for the partnership in the particular matter and the person with whom the partner
was dealing knew or had received a notification that the partner lacked authority.I
!his means that each partner can bind the partnership for transactions that would be
epected to take place in the type of business in which the partnership would be engaged.
!he issue of notice to third parties is important. *ection 818 of the #P$ %&&' encourages all
partnerships to file a *tatement of Partnership $uthority with the *ecretary of *tate and also
place a copy with the county clerk. !his statement lists the specific authorities for partners
and the $ct specifies that the filed statement is sufficient notice for partners engaging in
partnership real estate transactions. Dowever, the statement of authority is not sufficient
notice for other types of transactions. <or these other types of transactions, such as
purchasing items from suppliers, ordering goods online, or acquiring equipment for the
business, suppliers may presume any partner has the authority to transact unless that
supplier is given notification of a restriction on a partner,s authority to that supplier. !his
notice is best provided by written statement. @ut this may be difficult to do on a proactive
basis because you may not know with whom an individual partner is transacting in the
partnership,s name.
15-1!
Oou should also require that the specific authority of each partner be specified in the
partnership agreement. If a partner breaches that agreement, you will have legal recourse
against the partner, but that would mean seeking a legal "udgment for that breach. !hat
would take time and involve costs.
Oou should have a frank and open discussion with both $dam and @ob epressing your
concerns. If they are not interested in working with you to find ways to alleviate your
concerns and take actions to avoid potential future problems of the nature you discuss, then
it may be best for you not to become a partner in the business. If agreements cannot be
worked out prior to the formation of a partnership, it is highly doubtful they will be worked out
after the partnership is formed. )nce you are in a partnership it may be difficult and costly to
dissociate (leave) the partnership.
!here are online sources of eamples of partnership agreements, the #niform Partnership
$ct of %&&', a *tatement of Partnership $uthority, and you can find our state,s partnership
regulations through our *ecretary of *tate,s website. I urge you to be sure to satisfy your
concerns before you enter the partnership. Poining a partnership is a significant decision that
involves potential personal liability for the partnership,s obligations, including those incurred
by the other partners. $lternative business forms are available such as incorporating, for
which you should consult with an attorney who has had eperience in working with small
business corporations.
15-11
C15-6 P&)1)&)(8)* 01 U*,(. GAAP 10& P%&'()&*+,- A8802(',(.
!)( Pason and Jichard
J-( Oour Questions on #sing =$$P for Oour Partnership
-ach of your questions will be addressed in this memo, but first, a few general comments
regarding accounting for your partnership. ;e have discussed that you may select
accounting methods other than those specified by generally accepted accounting principles
(=$$P). <or eample, you may wish to use accounting methods consistent with those used
for preparing your partnership,s ta9based statement of income and computing your taable
distributable amounts. In anticipation of preparing your annual ta returns, I keep a running
list of the ta implications of your ma"or transactions and if it would be helpful to you, I can
discuss these ta implications with you in planning future transactions and evaluating
transactions as they occur during the year. @ut, as we have discussed, ta9based
accounting methods focus on determining what you will owe for taes, not the economic
foundation or the financial position you have both built since you started your partnership.
;e have also discussed the partnership,s need to obtain additional debt financing to
increase the net assets needed for new areas of growth. @ankers and other lenders prefer
financial statements prepared using =$$P because these persons understand how to
properly evaluate the financial position and performance of your business if =$$P is used.
!hey are familiar with =$$P and their requirement for audited financial statements prior to a
larger loan will allow your business to be eligible for an unqualified audit opinion from the
independent auditors. !hus, =$$P will provide these lenders with financial statements
which they may have confidence fairly report your business, financial positions. If =$$P is
not used, the lenders may have to ask a lot of questions about our financial position and
performance that will take us much time to analyze and properly answer.
Eow to your three questions(
a. *alaries to partners( !he #niform Partnership $ct of %&&' governs partnerships in our
state. *ection 21% (h) of that $ct states that, H$ partner is not entitled to remuneration for
services performed for the partnership, ecept for reasonable compensation for services
rendered in winding up the business of the partnership.I *alaries to partners are
considered to be a distribution in anticipation of profits and thus are recorded directly
against each partner,s capital account. !he profit allocation schedules prepared each
year include salaries as specified by your partnership agreement. Including salaries on
the *tatement of Income would be similar to including dividends on the *tatement of
Income. !hus, it is more acceptable to show salaries as part of the distribution of income
rather than an epense of the partnership.
b. #sing =$$P to account for admission of a new partner( =$$P provides for recognizing
impairment losses on long9lived assets held and used in the business, does not allow
the recognition of holding gains by increasing the value of these assets on the balance
sheet. !hese long9lived assets are used in the production process of the business and
you do not epect to sell them before their useful lives are substantially employed in the
business. Instead of increasing the basis of the long9lived assets at the time of admitting
a new partner, you could increase the investment required of the new partner and
allocate a HbonusI to your capital accounts as the prior partners during the increase in
fair value of these long9lived assets. !his is a relatively straight9forward process that is
used by many partnerships.
15-12
C15-6 (continued)
c. $nalyzing the partnership,s liabilities prior to admission of a new partner( <irst, *ection
810 (b) of the #niform Partnership $ct of %&&' states that, H$ person admitted as a
partner into an eisting partnership is not personally liable for any partnership obligation
incurred before the person,s admission as a partner.I !he person you are considering
asking to "oin the partnership will epect the partnership to have all of its liabilities
recognized and correctly measured in order to properly calculate the personal liability of
the new partner for only obligations generated after that new partner,s admission.
<urthermore, as negotiations develop with the potential new partner, you will most
certainly be asked to provide statements regarding the financial position of the
partnership. Oou do not want to misrepresent the correct financial position and be
personally liable for potential future damages sought by the new partner who based the
decision of whether or not to invest in your partnership was based on your financial
representations. $nd, by analyzing our recognized liabilities we may not only discover
some unrecognized liabilities, but also we can make sure that the proper documentation
is available on all liabilities to show the background of the transaction generating the
liability, but also the basis of the amount and the account. ;e will need these if we get
into a disputed claim from one of our vendors. $nd we will need these to clearly
document any loans made to the partnership by its current partners. Oou can think of this
analysis as a form of insurance against potential future problems concerning the status
of the partnership,s liabilities at the time of admitting the new partner.
Please do not hesitate to ask me questions about any aspect of accounting and financial
reporting for your partnership. ;e can discuss the reasons for using specific methods and
the possible alternatives from which you may select in order to have the financial reports
and statements be the most meaningful to each of you as you transact your business and
continue to grow into the future.
15-13
C15-7 C0/-%&,*0( 01 UPA 17 4,'+ UPA 114
a. !he Eational +onference of +ommissioners on #niform *tate Laws (E++#*L)
provides a web site (www.nccusl.org) that presents a list of states that have adopted
the Jevised #niform Partnership $ct (#P$ %&&') either in its earlier form in %&&6 and
%&&2, or in its slightly revised form of %&&'. $ number of other states that have not
adopted the #P$ %&&' as of now, have committees evaluating the possible costs and
benefits of adopting the #P$ %&&'. It is epected by the E++#*L that more states
will adopt the #P$ %&&' over time because of the pressure by creditors and from the
business community in general.
b. Oour advanced financial accounting class will have a broad listing of articles that
compare and contrast the #P$ %&&' with the #P$ %&%2. !he ma"or differences are(
%. Partnership as an entity. !he #P$ %&%2 defined a partnership as an
aggregation of the rights of the individual partners. !his meant that any time
there was a change in the membership of the partnership, a new entity resulted.
@ut, the #P$ %&&' states that a partnership is an entity separate from the
individual partners. !his means that a "udgment against the partnership is not a
"udgment against the individual partners, and a third party creditor with a
"udgment against the partnership is required to levy against the assets of the
partnership before going after a partner,s personal property. Nefining
6. <iduciary obligations. !he #P$ %&%2 provides very little discussion of the
fiduciary obligations between3among partners. !he #P$ %&&' epressly states
that each partner has a fiduciary duty of loyalty and care as defined in the #P$
%&&' to the partnership and to the other partners.
15-14
8. !hird party recognition. !he #P$ %&&' places an emphasis on protecting third
parties who deal with the partnership in good faith. !he third party no longer must
inquire of the partnership to find out if a partner does not have authority to bind
the partnership. !hird parties may presume that a partner does have the ability to
bind the partnership unless the third party has actual knowledge or has received
notification from the partnership that an individual party does not have authority
to bind the partnership. <or unusual partnership transactions, the #P$ %&&' has
a voluntary system of public filings specifically defining if a partner does not have
authority to carry out those transactions. #nder the #P$ %&%2, the burden was on
the third party to prove the transaction was properly authorized.
2. Nissociation. !he #P$ %&%2 is based on a dissolution of the partnership
which is defined as a change in the relation of the partners caused by any
partner ceasing to be associated in the carrying on of the business. @ut the #P$
%&&' includes partner dissociation which is withdrawals and other departures
from the partnership. $ dissociation does not necessarily cause dissolution as the
partnership may continue its legal eistence after a partner dissociates. !he #P$
%&&' provides for the buyout of a dissociated partner,s economic interest and the
partnership may continue without dissolution.
4. Jights of partners in dissolution. #nder the #P$ %&&', partners who are
creditors of the partnership (for eample, from personal loans made to the
partnership) have the same rights as other creditors (in pari passu). #nder the
#P$ %&%2, distributions after dissolution were made first to third9party creditors
before distributions to partners who are creditors of the partnership.
15-15
SO$UTIONS TO E;ERCISES
E15-1 M25',-5)-C+0,8) Q2)*',0(* 0( I(,',%5 I(6)*'/)(' <AICPA A3%-')3=
%. a
6. c
8. d
2. b /881,111 5 /41,111 C (/8%1,111 9 /81,111)
4. d
E15-2 D,6,*,0( 01 I(80/) > M25',-5) B%*)*
a. Nistribution of />1,111 income(
$ngela Nawn !otal
Profit percentage '17 817 %117
$verage capital / 41,111 / 81,111
Eet income / >1,111
Interest on average capital (%17) / 4,111 / 8,111 (>,111)
*alary 64,111 %4,111 (21,111)
Jesidual income / 86,111
$llocate '17(817 66,211 &,011 (86,111)
!otal / 46,211 / 6',011 / 919
b. Nistribution of /61,111 income(
$ngela Nawn !otal
Profit percentage '17 817 %117
$verage capital / 41,111 / 81,111
Eet income / 61,111
Interest on average capital (%17) / 4,111 / 8,111 (>,111)
*alary 64,111 %4,111 (21,111)
Jesidual income (deficit) / (6>,111)
$llocate '17(817 (%&,011) (>,211) 6>,111
!otal / %1,211 / &,011 / 919
*ection 21% of the #P$ %&&' states that, H-ach partner is entitled to an equal share of
the partnership profits and is chargeable with a share of the partnership losses in
proportion to the partner,s share of the profits.I
15-16
E15-3 D,6,*,0( 01 I(80/) ? I(')&)*' 0( C%-,'%5 B%5%(8)*
+omputation of average capital(
$verage capital for Left
Gonths Gonths
Nate Nebit +redit @alance Gaintained Nollar @alance
%3% /81,111 8 / &1,111
238 />,111 8>,111 4 %&1,111
>368 /0,111 86,111 6 02,111
%138% 0,111 8>,111 6 '0,111
!otal %6 /261,111
$verage capital (/261,111 3 %6 months) / 84,111
$verage capital for Jight
Gonths Gonths
%3% /41,111 6 /%11,111
834 /&,111 2%,111 2 %02,111
'30 /',111 2>,111 8 %22,111
%13' 4,111 48,111 8 %4&,111
!otal %6 /40',111
$verage capital (/40',111 3 %6 months) / 2',641
Nistribution of /41,111 income(
Left Jight !otal
Profit percentage 417 417 %117
$verage capital /84,111 /2',641
Eet income / 41,111
Interest on average capital (>7) / 6,>11 / 8,'>1 (0,4>1)
$llocate 417(417 6%,'%1 6%,'%1 (28,261)
!otal /62,4%1 /64,2&1 / 919
15-17
E15-4 D,*'&,@2',0( 01 P%&'()&*+,- I(80/) %(3 P&)-%&%',0( 01 % S'%')/)(' 01
P%&'()&*A C%-,'%5
a. Nistribution of partnership net income for 61R4(
$pple Pack !otal
Profit percentage (if positive) '17 817 %117
Profit percentage (if negative) 417 417 %117
Eet income / >1,111
Interest on average capital
balances(see *chedule %) / 8,%68 / ',661 (%1,828)
/ 0&,04'
@onus on net income before the
bonus but after interest
(see *chedule 6) 0,&00 (0,&00)
/ 06,0&%
*alaries 64,111 81,111 (44,111)
/ ',0&%
Jesidual income S allocate '1(81 4,8>2 6,81' (',0&%)
!otal /21,2'8 /8&,46' / 919
*chedule %( Partners. average capital balances for 61R4(
Gonths Gonths
+apital )ut9 +apital
@alance standing @alance
$pple S Panuary % to $pril % / 21,>11 8 / %66,211
S $pril % to Necember 8% / 44,>11 & 416,611
!otal %6 / 062,011
$verage capital balance
(/062,011 3 %6) / 46,141
Interest rate 1.10
Interest on average capital balance / 8,%68
Pack S Panuary % to $ugust % /%%6,111 ' / '>2,111
S $ugust % to Necember 8% /%86,111 4 001,111
!otal %6 /%,222,111
$verage capital balance
(/%,222,111 3 %6) / %61,888
Interest rate 1.10
Interest on average capital balance / ',661
*chedule 6( @onus on net income after interest on capital
@onus 5 1.%1(net income 9 interest on capital)
5 1.%1(/>1,111 9 /%1,828)
5 /0,&00
15-18
E15-4 (continued)
b.
$pple S Pack Partnership
*tatement of Partners. +apital
<or the Oear -nded Necember 8%, 61R4
$pple Pack !otal
@alance, Panuary %, 61R4 / 21,>11 /%%6,111 /%46,>11
$dd( $dditional investment %4,111 61,111 84,111
Eet income distribution 21,2'8 8&,46' >1,111
/ &0,6'8 /%'%,46' /60',>11
Less( ;ithdrawals (61,>11) (61,>11) (2%,011)
@alance, Necember 8%, 61R4 / '4,2'8 /%41,'6' /660,611
c.
$pple > Pack Partnership
Nistribution of />1,111 Eet Income
$pple Pack !otal
Profit percentage (if positive) '17 817 %117
Profit percentage (if negative) 417 417 %117
Eet income / >1,111
Interest on average capital
balances (see *chedule %) / 8,%68 / ',661 (%1,828)
/ 0&,04'
@onus on net income before the
bonus and after interest
(see *chedule 6) 0,&00 (0,&00)
/ 06,0&%
*alaries 81,111 84,111 (04,111)
(6,81&)
Jesidual loss S allocate 41(41 (%,%44) (%,%42) 6,81&
!otal /8>,&82 /2%,100 / 919
15-1
E15-5 M%'8+,(. P%&'()&*+,- T)&/* W,'+ T+),& D)*8&,-',0(*
%. <
6. -
8. D
2. +
4. =
0. $
'. I
>. N
&. G
%1. @
%%. P
%6. L
%8. P
%2. N
%4. @
15-2!
E15-6 A3/,**,0( 01 % P%&'()&
a. Netermine required payment if no bonus or goodwill recognized(
638 total resulting capital / 211,111
!otal resulting capital
(/211,111 3 1.00000B) / 011,111
!otal net assets prior to admission (211,111)
Jequired contribution (/011,111 1.8888) / 611,111
!herefore, -lan must invest /611,111 for a %38 interest.
b. -lan invests />1,111 for a one9fifth interest: goodwill recorded(
Investment in partnership / >1,111
Eew partner.s proportionate book value
?(/211,111 C />1,111 ) 1.61A (&0,111)
Nifference (investment cost T book value) / (%0,111)
Gethod( =oodwill to new partner
*tep %(
234 estimated total resulting capital / 211,111
-stimated total resulting capital
(/211,111 3 1.>1) / 411,111
*tep 6(
-stimated total resulting capital / 411,111
!otal net assets not including goodwill
(/211,111 C />1,111) (2>1,111)
-stimated goodwill to new partner / 61,111
+ash >1,111
=oodwill 61,111
-lan, +apital %11,111
/%11,111 5 /411,111 1.61
15-21
E15-6 (continued)
c. -lan invests /611,111 for a 61 percent interest: total capital specified
as /011,111(
Investment in partnership / 611,111
?(/211,111 C /611,111) 1.61A (%61,111)
Nifference (investment cost U book value) / >1,111
Gethod( =oodwill or bonus to prior partners
*pecified total capital / 011,111
(/211,111 C /611,111) (011,111)
-stimated goodwill / 919
!herefore, bonus method is used because no additional capital is
created.
+ash 611,111
Gary, +apital (/>1,111 1.01) 2>,111
=ene, +apital (/>1,111 1.81) 62,111
Pat, +apital (/>1,111 1.%1) >,111
-lan, +apital (/011,111 1.61) %61,111
d" #e$tion 3!6 o% the &P' 17 states that (' person admitted into an e)isting
partnership is not persona**+ *iab*e %or an+ partnership ob*igation in$,rred be%ore the
person-s admission as a partner". '*tho,gh /*an 0o,*d not be persona**+ *iab*e, she
does ha1e the ris2 o% *osing her in1estment in the partnership"
E15-7 A3/,**,0( 01 % P%&'()&
a. =erry invests /41,111 and goodwill is to be recorded(
?(/%01,111 C /41,111) 1.61A (26,111)
Nifference (investment cost U book value) / >,111
Gethod( =oodwill to prior partners
*tep %(
1.61 estimated total resulting capital / 41,111
(/41,111 3 1.61) / 641,111
15-22
E15-7 (continued)
*tep 6(
(/%01,111 C /41,111) (6%1,111)
-stimated goodwill to prior partners / 21,111
+ash 41,111
=oodwill 21,111
Pam, +apital (/21,111 1.'4) 81,111
Pohn, +apital (/21,111 1.64) %1,111
=erry, +apital (/641,111 1.61) 41,111
E)E9 =$$P( Jecognition of goodwill at the time a new partner is admitted is not
=$$P. #nder =$$P, goodwill is to be recognized only when acquired. $n entity
cannot recognize internally generated goodwill.
b. =erry invests /41,111: total capital is to be /6%1,111(
?(/%01,111 C /41,111) 1.61A (26,111)
Nifference (investment U book value) / >,111
Gethod( =oodwill or bonus to prior partners
*pecified total resulting capital / 6%1,111
(/%01,111 C /41,111) (6%1,111)
!herefore, bonus of />,111 to prior partners
+ash 41,111
Pam, +apital (/>,111 1.'4) 0,111
Pohn, +apital (/>,111 1.64) 6,111
=erry, +apital (/6%1,111 1.61) 26,111
=$$P( Partners are legally able to allocate their
capital interests however they choose.
c. Nirect purchase from Pam: thus, only reclassify capital(
Pam, +apital 86,111
=erry, +apital (/%01,111 1.61) 86,111
=$$P( $ purchase of a partnership share made directly from a present partner is an
allocation of that partner,s capital interest. Eote that the partnership did not receive
the /41.111 cash.
15-23
E15-7 (continued)
d. =erry invests /84,111: total capital to be /%&4,111(
?(/%01,111 C /84,111) 1.61A (8&,111)
Nifference (investment T book value) / (2,111)
Gethod( =oodwill or bonus to new partner
*pecified total resulting capital / %&4,111
(/%01,111 C /84,111) (%&4,111)
!herefore, bonus of /2,111 to new partner
+ash 84,111
Pam, +apital (/2,111 1.'4) 8,111
Pohn, +apital (/2,111 1.64) %,111
=erry, +apital (/%&4,111 1.61) 8&,111
=$$P( Partners may allocate capital among themselves, including new capital
received from a partner being admitted into the partnership.
e. =erry invests /84,111 and goodwill to be recorded(
?(/%01,111 C /84,111) 1.61A (8&,111)
*tep %(
1.>1 estimated total resulting capital / %01,111
(/%01,111 3 1.>1) / 611,111
*tep 6(
(/%01,111 C /84,111) (%&4,111)
-stimated goodwill to new partner / 4,111
+ash 84,111
=oodwill 4,111
=erry, +apital 21,111
/21,111 5 /611,111 1.61
E)E9 =$$P( Jecognition of goodwill at the time a new partner is admitted is not
allowed under =$$P.
15-24
E15-7 (continued)
f. =erry invests /84,111: inventory write down of /61,111 recognized
;rite down inventory to L)+)G prior to admission of new partner. Jeduction of
/61,111 to market.
Pam, +apital (/61,111 1.'4) %4,111
Pohn, +apital (/61,111 1.64) 4,111
Inventory 61,111
?(/%21,111 C /84,111) 1.61A (84,111)
Nifference (investment 5 book value) / 919
Gethod( Eo bonus or goodwill stated.
+ash 84,111
=erry, +apital (/%'4,111 .61) 84,111
=$$P( Eote that the write down of inventory to its lower9of9cost9or9market value is
proper under =$$P. !his results in the prior partners, capital of /%21,111 (/%01,111
less /61,111 write down). $ny revaluations of assets or liabilities that are proper
under =$$P should be made before determining the prior partners, capital that is
used in computing the new partner,s proportionate book value of the total resulting
capital of the partnership.
15-25
E15-8 M25',-5)-C+0,8) Q2)*',0(* 0( '+) A3/,**,0( 01 % P%&'()&
%. d *pecified no bonus or goodwill(
430 estimated total resulting capital / %41,111
-stimated total resulting capital (/%41,111 3 430) / %>1,111
Jequired investment (/%>1,111 %30) / 81,111
6. d Nirect purchase: reclassify +laire.s capital only.
8. c *cott invests /80,111 for a %34 interest(
?(/%61,111 C /80,111) 1.61A (8%,611)
Nifference (investment U book value) / 2,>11
*tep %(
%34 estimated total resulting capital / 80,111
(/80,111 3 1.61) / %>1,111
*tep 6(
-stimated total resulting capital / %>1,111
(/%61,111 C /80,111) (%40,111)
2. b Lisa invests /21,111 and total capital specified as /%41,111(
?(/%%1,111 C /21,111) %38A (41,111)
Nifference (investment T book value) / (%1,111)
Gethod( @onus or goodwill to new partner
*pecified total resulting capital / %41,111
(/%%1,111 C /21,111) (%41,111)
!herefore, bonus of /%1,111 to new partner
@oris. capital 5 /42,111 5 /01,111 9 (/%1,111 03%1)
15-26
E15-8 (continued)
4. c Pete invests /%',111: no goodwill recorded(
Investment in partnership / %',111
?(/01,111 C /%',111) %34A (%4,211)
Nifference (investment U book value) / %,011
Gethod( @onus to prior partners
Pete.s capital credit 5 /'',111 %34 5 /%4,211
0. b Nirect purchase and computation of gain to prior partners(
*elling price /%86,111
@ook value of interest sold
?(/%8&,111 C /61&,111 C /&0,111) %34A (>>,>11) V
=ain to -lla and Eick / 28,611
V!ony acquired a one9fifth interest in the net assets of the
partnership.
'. b Lute invests /64,111 and total capital specified as /&1,111(
?(/04,111 C /64,111) %38A (81,111)
*pecified total resulting capital / &1,111
(/04,111 C /64,111) (&1,111)
!herefore, bonus of /4,111 to new partner
+ash 64,111
<red, +apital (/4,111 1.'1) 8,411
Jalph, +apital (/4,111 1.81) %,411
Lute, +apital (/&1,111 %38) 81,111
>. b
15-27
E15- W,'+3&%4%5 01 % P%&'()&
a. Karl receives /8>,111 and no goodwill is recorded(
@onus to withdrawing partner(
Payment / 8>,111
Karl,s capital account (81,111)
@onus paid / >,111
Karl, +apital 81,111
Luis, +apital (/>,111 1.>1) 0,211
Garty, +apital (/>,111 1.61) %,011
+ash 8>,111
b. Karl receives /26,111 and only the withdrawing partner.s share of goodwill is
recognized(
Payment to Karl / 26,111
Karl.s capital account (81,111)
Karl.s share of goodwill / %6,111
=oodwill %6,111
+ash 26,111
c. Jecognize all implied goodwill on payment of /84,111(
Karl.s share of goodwill
(/84,111 9 /81,111 capital) / 4,111
%30 !otal estimated goodwill / 4,111
!otal estimated goodwill
(/4,111 3 1.%0000B) /81,111
Jecord goodwill(
=oodwill 81,111
Luis, +apital (/81,111 1.000') 61,111
Garty, +apital (/81,111 1.%00') 4,111
Karl, +apital (/81,111 1.%00') 4,111
;ithdrawal of Karl(
+ash 84,111
d. *ection '1% of the #P$ %&&' defines the buyout price of a dissociated partner,s interest
in the partnership as the estimated amount that would be distributable to that partner if the
assets of the partnership were sold at a price equal to the greater of the liquidation value
or the value based on a sale of the entire business as a going concern without the
dissociated partner and the partnership was wound up including all partnership obligations
paid. !hus, the buyout price is equivalent to what the dissociating partner would have
received if the partnership had wound up and terminated.
15-28
E15-1! R)',&)/)(' 01 % P%&'()&
+ase %( @onus of /%1,111 to -ddy(
-ddy, +apital '1,111
+obb, +apital (/%1,111 834) 0,111
Navis, +apital (/%1,111 634) 2,111
+ash >1,111
+ase 6( Nistribution of -ddy.s share of goodwill(
=oodwill 2,111
-ddy, +apital 2,111
+ash '2,111
+ase 8( @onus of /4,111 distributed to remaining partners(
+ash 04,111
+obb, +apital (/4,111 834) 8,111
Navis, +apital (/4,111 634) 6,111
+ase 2( Jecognize total implied goodwill(
=oodwill 62,111
+obb, +apital (/62,111 830) %6,111
Navis, +apital (/62,111 630) >,111
-ddy, +apital (/62,111 %30) 2,111
+ash '2,111
+ase 4( )ther assets disbursed(
)ther $ssets 01,111
+obb, +apital (/01,111 830) 81,111
Navis, +apital (/01,111 630) 61,111
-ddy, +apital (/01,111 %30) %1,111
-ddy, +apital >1,111
+ash 21,111
)ther $ssets 21,111
+ase 0( Navis directly purchases -ddy.s capital interest(
Navis, +apital '1,111
15-2
SO$UTIONS TO PROB$EMS
P15-11 A3/,**,0( 01 % P%&'()&
a. ;ayne purchases one9half of Gerina.s investment for /&1,111(
Gerina, +apital >1,111
;ayne, +apital >1,111
b. ;ayne invests amount for one9third interest: no goodwill or bonus(
638 !otal resulting capital / 801,111
!otal resulting capital (/801,111 3 638) / 421,111
$mount to be invested by ;ayne (/421,111 %38) / %>1,111
+ash %>1,111
;ayne, +apital %>1,111
c. ;ayne invests /%%1,111 for a one9fourth interest: goodwill(
Investment in partnership / %%1,111
?(/801,111 C /%%1,111) %32A (%%',411)
Nifference (investment cost T book value) / (',411)
*tep %(
832 estimated total resulting capital / 801,111
-stimated total resulting capital (/801,111 3 832) / 2>1,111
*tep 6(
-stimated total resulting capital / 2>1,111
(/801,111 C /%%1,111) (2'1,111)
-stimated goodwill to new partner / %1,111
+ash %%1,111
=oodwill %1,111
;ayne, +apital %61,111
/%61,111 5 /2>1,111 total resulting capital %32

d. ;ayne invests /%11,111 for a one9fourth interest: some inventory is obsolete(
Investment in partnership / %11,111
?(/801,111 C /%11,111) %32A (%%4,111)
Nifference (investment cost T book value) / (%4,111)
15-3!
Gethod( $sset revaluation decrease to prior partners
15-31
P15-11 (continued)
*tep %(
%32 estimated total resulting capital / %11,111
(/%11,111 3 %32) / 211,111
*tep 6(
!otal net assets before inventory write9down
(/801,111 C /%11,111) (201,111)
Inventory write9down required / (01,111)
Jecord write9down(
Nebra, +apital (/01,111 1.01) 80,111
Gerina, +apital (/01,111 1.21) 62,111
Inventory 01,111
Jecord admission of ;ayne(
+ash %11,111
/%11,111 5 %32 of /211,111 resulting total capital after write9down
e. ;ayne purchases one9fourth interest directly from Nebra and Gerina: land
revalued(
(/801,111 %32) / &1,111
Gethod stated( Increase land valuation
*tep %(
%32 estimated total resulting capital (/>1,111 C /01,111) / %21,111
-stimated total resulting capital (/%21,111 3 %32) / 401,111
*tep 6(
!otal net assets before land revaluation
(/611,111 C /%01,111) (801,111)
Increase in value of land / 611,111
Jevalue land(
Land 611,111
Nebra, +apital (/611,111 1.01) %61,111
Gerina, +apital (/611,111 1.21) >1,111
Jeclassification of capital for admission of ;ayne(
Nebra, +apital (/861,111 1.64) >1,111
15-32
Gerina, +apital (/621,111 1.64) 01,111
/%21,111 5 %32 of /401,111 total resulting capital after recording increase in
value of land.
15-33
P15-11 (continued)
f. ;ayne invests />1,111 for a one9fifth interest: total capital specified as
/221,111(
Investment in partnership / >1,111
?(/801,111 C />1,111) %34A (>>,111)
Nifference (investment cost T book value) / (>,111)
*pecified total resulting capital / 221,111
(/801,111 C />1,111) (221,111)
!herefore, bonus of />,111 to new partner
+ash >1,111
Nebra, +apital (/>,111 1.01) 2,>11
Gerina, +apital (/>,111 1.21) 8,611
;ayne, +apital (/221,111 %34) >>,111
g. ;ayne invests /%11,111 for a one9fifth interest: goodwill recorded.
Investment in partnership / %11,111
?(/801,111 C /%11,111) %34A (&6,111)
Nifference (investment cost U book value) / >,111
*tep %(
%34 estimated total resulting capital / %11,111
-stimated total resulting capital (/%11,111 3 %34) / 411,111
*tep 6(
(/801,111 C /%11,111) (201,111)
Jecord goodwill(
=oodwill 21,111
Nebra, +apital (/21,111 1.01) 62,111
Gerina, +apital (/21,111 1.21) %0,111
$dmission of ;ayne(
+ash %11,111
15-34
/%11,111 5 %34 of /411,111 total resulting capital after recording goodwill
of /21,111.

15-35
P15-11 (continued)
@alance *heet <ormat (Eot Jequired)
Prior to admission
of new partner(
;ayne Eet $ssets /801,111 Prior partner,s capital /801,111
Eew partner,s
cash investment +ash %11,111 Eew tangible capital %11,111
+apital prior to
recognizing goodwill /201,111 /201,111
-stimated new
goodwill =oodwill 21,111 +apital from goodwill 21,111
!otal resulting
capital Eet $ssets /411,111 !otal resulting capital /411,111
15-36
P15-12 D,6,*,0( 01 I(80/)
a. Nistribution of /'>,&01 income(
-astwood Eorth ;est !otal
Profit ratio 8 8 2 %1
-nding capital /6>,111 /21,111 /2>,111
Eet income / '>,&01
*alary /%4,111 /61,111 /%>,111 (48,111)
@onus
a
8,'01 (8,'01)
Interest on ending
capital balance (%17) 6,>11 2,111 2,>11 (%%,011)
Jesidual income / %1,011
$llocate 8(8(2 8,%>1 8,%>1 2,621 (%1,011)
!otal /62,'21 /6',%>1 /6',121 / 919
a
@onus 5 1.14(Eet Income 9 @onus)
@ 5 1.14(/'>,&01 9 @)
61@ 5 /'>,&01 9 @
6%@ 5 /'>,&01
@ 5 /8,'01
b. Nistribution of /0>,1>1 net income(
$verage capital for -astwood
Gonths Gonths
%3% /81,111 2 /%61,111
43% /0,111 80,111 2 %22,111
&3% />,111 6>,111 2 %%6,111
!otal %6 /8'0,111
$verage capital (/8'0,111 3 %6 months) / 8%,888
$verage capital for Eorth
Gonths Gonths
%3% /21,111 6 / >1,111
83% /&,111 8%,111 2 %62,111
'3% /4,111 80,111 6 '6,111
&3% 2,111 21,111 2 %01,111
!otal %6 /280,111
15-37
P15-12 (continued)
$verage capital for ;est
Gonths Gonths
%3% /41,111 8 /%41,111
23% /',111 4',111 6 %%2,111
03% 8,111 01,111 6 %61,111
>3% /%6,111 2>,111 4 621,111
!otal %6 /062,111
Nistribution of /0>,1>1 income(
Profit ratio % % % 8
$verage capital /8%,888 /80,888 /46,111
Eet income / 0>,1>1
Interest on average
capital balance (%17) / 8,%88 / 8,088 / 4,611 (%%,&00)
*alary 62,111 6%,111 64,111 ('1,111)
@onus
a
2,6>1 (2,6>1)
Jesidual income (deficit) /(%>,%00)
$llocate %(%(% (0,144) (0,144) (0,140) %>,%00
!otal /6%,1'> /66,>4> /62,%22 / 919
a
@onus 5 1.%1(Eet Income 9 @onus 9 Eorth.s *alary)
@ 5 1.%1(/0>,1>1 9 @ 9 /6%,111)
@ 5 1.%1(/2',1>1 9 @)
%1@ 5 /2',1>1 9 @
%%@ 5 /2',1>1
@ 5 /2,6>1
c. Nistribution of /&6,&21 net income(
Profit ratio > ' 4 61
@eginning capital /81,111 /21,111 /41,111
Eet income / &6,&21
@onus
a
0,2&1 (0,2&1)
*alary 6%,111 %>,111 %4,111 (42,111)
Interest on beginning
capital balance (%17) 8,111 2,111 4,111 (%6,111)
$llocate >('(4 >,%>1 ',%4> 4,%%6 (61,241)
!otal /86,%>1 /6&,%4> /8%,016 / 919
15-38
a
@onus 5 1.61(Eet Income 9 @onus 9 *alaries)
@ 5 1.61(/&6,&21 9 @ 9 /42,111)
@ 5 1.61(/8>,&21 9 @)
4@ 5 /8>,&21 9 @
0@ 5 /8>,&21
@ 5 /0,2&1
15-3
P15-13 D)')&/,(,(. % N)4 P%&'()&A* I(6)*'/)(' C0*'
a. /611,111 (Eo goodwill or bonus recorded)
+ash 611,111
*nider, +apital (/>11,111 %32) 611,111
1.'4 estimated total resulting capital / 011,111
-stimated total resulting capital (/011,111 3 1.'4) / >11,111
Prior capital (011,111)
+ash contribution required from *nider / 611,111
b. /6%1,111 (=oodwill of /81,111 to prior partners)
=oodwill 81,111
Ner, +apital (/81,111 1.21) %6,111
-gan, +apital (/81,111 1.81) &,111
)prins, +apital (/81,111 1.81) &,111
+ash 6%1,111
*nider, +apital (/>21,111 %32) 6%1,111
Prior capital after goodwill recognition (081,111)
+ash contribution required from *nider / 6%1,111
c. /686,111 (@onus of /62,111 to be paid to *nider)
+ash 686,111
Ner, +apital (/62,111 1.21) &,011
-gan, +apital (/62,111 1.81) ',611
)prins, +apital (/62,111 1.81) ',611
*nider, +apital (/>86,111 %32) 61>,111
1.'4 estimated total resulting capital
(/011,111 C /62,111 bonus) / 062,111
Prior capital before bonus from *nider (011,111)
d. /%&1,111 (Eew partner given /%1,111 of goodwill)
+ash %&1,111
=oodwill %1,111
*nider, +apital (/>11,111 %32) 611,111
+apital credit to *nider / 611,111
=oodwill to *nider (%1,111)
+ash contribution required from *nider / %&1,111
15-4!
P15-13 (continued)
e. /661,111 ()ther assets increased by /61,111 and goodwill
of /21,111 allocated to prior partners)
)ther $ssets 61,111
=oodwill 21,111
Ner, +apital (/01,111 1.21) 62,111
-gan, +apital (/01,111 1.81) %>,111
)prins, +apital (/01,111 1.81) %>,111
+ash 661,111
*nider, +apital (/>>1,111 %32) 661,111
(/011,111 C /01,111 revaluation and goodwill) / 001,111
-stimated total resulting capital (/001,111 3 1.'4) / >>1,111
Prior capital after recognition of asset
revaluation and goodwill to prior partners (001,111)
f. /661,111 (Eo goodwill: total resulting capital is />61,111)
+ash 661,111
Ner, +apital (/%4,111 1.21) 0,111
-gan, +apital (/%4,111 1.81) 2,411
)prins, +apital (/%4,111 1.81) 2,411
*nider, +apital (/>61,111 %32) 614,111
*pecified total resulting capital / >61,111
?(/011,111 C /661,111 ) 1.64A (614,111)
Nifference (investment U book value) / %4,111
Gethod( @onus of /%4,111 to prior partners
15-41
P15-13 (continued)
g. /%21,111 ()ther assets decreased /61,111: bonus of /21,111 to new partner)
Ner, +apital (/61,111 1.21) >,111
-gan, +apital (/61,111 1.81) 0,111
)prins, +apital (/61,111 1.81) 0,111
)ther $ssets 61,111
+ash %21,111
Ner, +apital (/21,111 1.21) %0,111
-gan, +apital (/21,111 1.81) %6,111
)prins, +apital (/21,111 1.81) %6,111
*nider, +apital (/'61,111 %32) %>1,111
after asset write9downs and bonus to
new partner (/011,111 9 /01,111) / 421,111
-stimated total resulting capital (/421,111 3 1.'4) / '61,111
Prior capital after asset write9downs
and bonus to new partner (421,111)
+apital credit to *nider / %>1,111
@onus to *nider (21,111)
+ash contribution required from *nider / %21,111
15-42
P15-14 D,6,*,0( 01 I(80/)
a. Nistribution of /02,601 net income(
$verage capital for Luc
Gonths Gonths
%3% /41,111 8 /%41,111
23% / 4,111 44,111 2 661,111
>3% /%4,111 21,111 4 611,111
!otal %6 /4'1,111
$verage capital (/4'1,111 3 %6 months) / 2',411
$verage capital for Nennis
Gonths Gonths
%3% /'1,111 0 /261,111
'3% /%1,111 01,111 6 %61,111
&3% /66,411 >6,411 2 881,111
!otal %6 />'1,111
$verage capital (/>'1,111 3 %6 months) / '6,411
Luc Nennis !otal
Profit ratio 8 6 4
$verage capital /2',411 /'6,411
Eet income / 02,601
*alary /62,111 /6>,111 (46,111)
Interest on average capital (%17) 2,'41 ',641 (%6,111)
@onus
a
8,101 (8,101)
Jesidual income / (6,>11)
$llocate 8(6 (%,0>1) (%,%61) 6,>11
!otal /81,%81 /82,%81 / 919
a
@onus 5 1.14(Eet Income 9 @onus)
@ 5 1.14(/02,601 9 @)
61@ 5 /02,601 9 @
6%@ 5 /02,601
@ 5 /8,101
15-43
P15-14 (continued)
b. Nistribution of /%1>,'11 income(
Luc Nennis !otal
Profit ratio % % 6
-nding capital balance after
deducting salaries of /62,111
for Luc and /6>,111 for Nennis /%0,111 /42,411
Eet income /%1>,'11
*alary /62,111 /6>,111 (46,111)
Interest on ending capital
balance (%17) %,011 4,241 (',141)
@onus
a
2,611 (2,611)
$llocate %(% 66,'64 66,'64 (24,241)
!otal /46,464 /40,%'4 / 919
a
@onus 5 1.1>(Eet Income 9 @onus 9 *alaries)
@ 5 1.1>(/%1>,'11 9 @ 9 /46,111)
%6.41@ 5 /40,'11 9 @
%8.41@ 5 /40,'11
@ 5 / 2,611
c. Nistribution of /'0,&41 income(
Luc Nennis !otal
Profit ratio 2 6 0
@eginning capital balance /41,111 /'1,111
Eet income / '0,&41
*alary /62,111 /6>,111 (46,111)
Interest on beginning
capital balance (%17) 4,111 ',111 (%6,111)
@onus
a
>,441 (>,441)
$llocate 2(6 6,&88 %,20' (2,211)
!otal /21,2>8 /80,20' / 919
a
@onus 5 1.%64(Eet Income 9 @onus)
@ 1.%64(/'0,&41 9 @)
>@ /'0,&41 9 @
&@ /'0,&41
@ />,441
15-44
P15-15 W,'+3&%4%5 01 % P%&'()& 2(3)& B%&,02* A5')&(%',6)*
a. *pade.s capital interest was acquired in a personal transaction with Pack.
*pade, +apital %61,111
Pack, +apital %61,111
b. $mount paid by Pack for *pade.s capital
interest / %41,111
Jecorded amount of *pade.s capital interest (%61,111)
=oodwill attributable to *pade / 81,111
*pade.s share of profits3losses 417
Implied value of the partnership.s goodwill
(/81,111 3 1.41) W allocated to all partners in
the ratio 61(81(41 / 01,111
=oodwill 01,111
$ce, +apital (1.61 /01,111) %6,111
Pack, +apital (1.81 /01,111) %>,111
*pade, +apital (1.41 /01,111) 81,111
*pade, +apital (/%61,111 C 81,111) %41,111
Pack, +apital %41,111
c. !he partnership paid a bonus to *pade upon retirement. !otal capital of the
partnership after *pade.s retirement was /6&1,111.
$mount paid to *pade upon retirement / %>1,111
*pade.s capital credit (%61,111)
@onus paid to *pade S allocated to
$ce and Pack in the ratio 21(01 / 01,111
$ce, +apital (1.21 /01,111) 62,111
Pack, +apital (1.01 /01,111) 80,111
+ash %>1,111
+apital balances after retirement(
$ce, +apital (/%41,111 9 /62,111) / %60,111
Pack, +apital (/611,111 9 /80,111) %02,111
!otal capital / 6&1,111
15-45
P15-15 (continued)
d. *pade was given cash and land. +apital of the partnership after *pade.s
retirement was /8%1,111.
$ce Pack *pade
Profit ratio 617 817 417
+apital balances before
*pade.s retirement /%41,111 /611,111 / %61,111
=ain recognized on transfer
of land to *pade
(/%61,111 minus /%11,111) 2,111 0,111 %1,111
+apital balances after
allocation of gain /%42,111 /610,111 / %81,111
$mount paid to *pade (/01,111 cash and /%61,111 land) / %>1,111
*pade.s capital interest S see above schedule (%81,111)
@onus to *pade allocated between $ce and Pack in the
ratio 21(01 / 41,111
Land 61,111
$ce, +apital (1.61 /61,111) 2,111
Pack, +apital (1.81 /61,111) 0,111
*pade, +apital (1.41 /61,111) %1,111
$ce, +apital (1.21 /41,111) 61,111
Pack, +apital (1.01 /41,111) 81,111
+ash 01,111
Land %61,111
+apital balances after *pade.s retirement(
$ce, +apital (/%42,111 9 /61,111) / %82,111
Pack, +apital (/610,111 9 /81,111) %'0,111
!otal capital / 8%1,111
e. *pade was given /%41,111 upon retirement, and the goodwill attributable to
*pade was recognized.
$mount paid to *pade / %41,111
*pade.s capital interest (%61,111)
=oodwill 81,111
+ash %41,111
15-46
P15-15 (continued)
f. *pade was given /%41,111 upon retirement, and goodwill applicable to the entire
business was recorded.
$mount paid to *pade / %41,111
*pade.s capital interest (%61,111)
*pade.s share of profits3losses 417
=oodwill attributable to the entire partnership
/81,11131.41 S allocated to all the partners in the ratio 61(81(41 / 01,111
=oodwill 01,111
$ce, +apital (1.61 /01,111) %6,111
Pack, +apital (1.81 /01,111) %>,111
*pade, +apital (1.41 /01,111) 81,111
+ash %41,111
g. *pade was given land and a note payable upon retirement. +apital of the
partnership after *pade.s retirement was /801,111.
$ce Pack *pade
Profit ratio 617 817 417
+apital balances before *pade.s
retirement /%41,111 /611,111 / %61,111
$llocation of gain on transfer of
land (/%11,111 9 /01,111 5 /21,111) >,111 %6,111 61,111
+apital balances before *pade.s
retirement, ad"usted for gain /%4>,111 /6%6,111 / %21,111
$mount paid to *pade
(/%11,111 of land C /41,111 note) / %41,111
*pade.s capital interest S ad"usted (%21,111)
@onus given to *pade S allocated between
$ce and Pack in the ratio 21(01 / %1,111
Land 21,111
$ce, +apital (1.61 /21,111) >,111
Pack, +apital (1.81 /21,111) %6,111
*pade, +apital (1.41 /21,111) 61,111
*pade, capital %21,111
$ce, +apital (1.21 /%1,111) 2,111
Pack, +apital (1.01 /%1,111) 0,111
Land %11,111
Eote Payable 41,111
+apital balances after *pade.s retirement(
$ce, +apital (/%4>,111 9 /2,111) /%42,111
Pack, +apital (/6%6,111 9 /0,111) 610,111
!otal capital /801,111
15-47
P15-16 M25',-5) C+0,8) Q2)*',0(* > I(,',%5 I(6)*'/)('*, D,6,*,0( 01 I(80/),
A3/,**,0( %(3 R)',&)/)(' 01 % P%&'()& <AICPA A3%-')3=
%. d !he contribution of noncash property into a partnership should be recorded by
crediting the partner.s capital account for the fair value of the property
contributed. In effect, the partnership is acquiring the property from the partner
at its fair value.
6. b !he capital balances of ;illiam and Gartha at the date of partnership formation
are determined as follows(
;illiam Gartha
+ash /61,111 / 81,111
Inventory 9 %4,111
@uilding 9 21,111
<urniture and equipment %4,111 9
!otal /84,111 / >4,111
Less mortgage assumed
by partnership (%1,111)
$mounts credited to capital /84,111 / '4,111
8. d !otal of old partners. capital / >1,111
Investment by new partner %4,111
!otal of new partnership capital / &4,111
+apital amount credited to Pohnson
(/&4,111 1.61) / %&,111
2. c !he capital balances of each partner are determined as follows(
$pple @lue +rown
+ash /41,111
Property / >1,111
Gortgage assumed (84,111)
-quipment / 44,111
$mount credited to
capital accounts /41,111 / 24,111 / 44,111
15-48
P15-16 (continued)
4. d @ecause both partners have equal capital balances, Eorbert.s capital has to be
increased to equal that of Goon.s. *ince Goon.s capital balance is /01,111 and
Eorbert.s is /61,111, an additional /21,111 has to be credited to Eorbert.s
capital to make it equal Goon.s capital. !his additional amount credited to
Eorbert.s capital is the goodwill that Eorbert is bringing to the partnership.
0. a Goon.s share of the net income of /64,111 is 017, or /%4,111.
'. d +rowe and Nagwood are getting a bonus from -lman, since the amount of
-lman.s investment into the partnership eceeds the amount credited to
-lman.s capital account. !he bonus should be allocated to +rowe and Nagwood
in their respective profit and loss ratio before the admission of -lmanSWthe old
profit and loss ratio.
>. b !he net income of />1,111 is allocated to @lue and =reen in the following
manner(
@lue =reen Eet Income
/ >1,111
*alary allowances / 44,111 /24,111 (%11,111)
Jemainder / (61,111)
$llocation of the negative
remainder in the
01(21 ratio (%6,111) (>,111) 61,111
$llocation of net income / 28,111 /8',111 / 919
&. c Pill received a bonus when she retired from the partnership. !he bonus is being
given to Pill by @ill and Dill, which means that the bonus is allocated to @ill.s and
Dill.s capital accounts in their respective profit and loss sharing ratio.
15-4
P15-17 P%&'()&*+,- F0&/%',0(, O-)&%',0(, %(3 C+%(.)* ,( O4()&*+,-
a. -ntries to record the formation of the partnership and the events that occurred
during 61R'(
+ash %%1,111
Inventory >1,111
Land %81,111
-quipment %11,111
Gortgage payable 41,111
Installment Eote Payable 61,111
Pordan, +apital (/01,111C />1,111 C /%11,111
9 /61,111) 661,111
),Eeal, +apital
(/41,111 C /%81,111 9 /41,111) %81,111
(%) Inventory 81,111
+ash 62,111
$ccounts Payable 0,111
(6) Gortgage Payable 4,111
Interest -pense 6,111
+ash ',111
(8) Installment Eote Payable 8,411
+ash 4,411
(2) $ccounts Jeceivable 6%,111
+ash %82,111
*ales %44,111
(4) *elling and =eneral -penses 82,111
+ash 6',>11
$ccrued -penses Payable 0,611
(0) Nepreciation -pense 0,111
$ccumulated Nepreciation 0,111
(') Pordan, Nrawing (/611 46) %1,211
),Eeal, Nrawing %1,211
+ash 61,>11
(>) *ales %44,111
Income *ummary %44,111
(&) +ost of =oods *old &1,111
Inventory &1,111
/&1,111 5 />1,111 beginning inventory C 81,111 purchases 9 61,111
ending inventory
15-5!
P15-17 (continued)
Income *ummary %82,111
+ost of =oods *old &1,111
*elling and =eneral -penses 82,111
Nepreciation -pense 0,111
Income *ummary 6%,111
Pordan, +apital %1,411
),Eeal, +apital %1,411
Pordan, +apital %1,211
),Eeal, +apital %1,211
Pordan, Nrawing %1,211
),Eeal, Nrawing %1,211
*chedule to allocate partnership net income for 61R'(
Pordan

),Eeal !otal
Profit percentage 017 217 %117
@eginning capital balance /661,111 /%81,111 /841,111
Eet income (/%44,111 revenue
9 /%82,111 epenses) / 6%,111
Interest on beginning capital balances (87) / 0,011 / 8,&11 (%1,411)
/ %1,411
*alaries %6,111 %6,111 (62,111)
/(%8,411)
Jesidual deficit (>,%11) (4,211) %8,411
!otal / %1,411 / %1,411 / 919
b. Pordan S ),Eeal Partnership
Income *tatement
<or the Oear -nded Necember 8%, 61R'
*ales /%44,111
Less( +ost of =oods *old(
Inventory, Panuary % / >1,111
Purchases 81,111
=oods $vailable for *ale /%%1,111
Less( Inventory, Necember 8% (61,111) (&1,111)
=ross Profit / 04,111
Less( *elling and =eneral -penses / 82,111
Nepreciation -pense 0,111 (21,111)
)perating Income / 64,111
Eonoperating -pense W Interest (2,111)
Eet Income / 6%,111
15-51
P15-17 (continued)
c. Pordan S ),Eeal Partnership
@alance *heet
$t Necember 8%, 61R'
$ssets
+ash /%4>,&11
$ccounts Jeceivable 6%,111
Inventory 61,111
Land %81,111
-quipment (net) &2,111
!otal $ssets /268,&11
Liabilities and +apital
Liabilities(
$ccounts Payable / 0,111
$ccrued -penses Payable 0,611
Installment Eote Payable %0,411
Gortgage Payable 24,111
!otal Liabilities / '8,'11
+apital(
Pordan, +apital /661,%11
),Eeal, +apital %81,%11
!otal +apital 841,611
!otal Liabilities and +apital /268,&11
d. Dill.s investment into the partnership / &&,>11
Prior partners. capital 841,611
!otal capital of the new partnership /241,111
Dill.s capital credit (1.61 /241,111) / &1,111
@onus allocated to Pordan and ),Eeal in the
ratio 01(21 / &,>11
Panuary %, 61R> "ournal entry(
+ash &&,>11
Pordan, +apital (1.01 /&,>11) 4,>>1
),Eeal, +apital (1.21 /&,>11) 8,&61
Dill, +apital &1,111
15-52
P15-18A I(,',%5 I(6)*'/)('* %(3 T%C B%*)* <AICPA A3%-')3=
a. -ntry to record initial investments using =$$P accounting(
+ash 41,111
+omputers and Printers %>,111
)ffice <urniture 68,111
Library ',111
@uilding 01,111
Eotes Payable 64,111
Gortgage Payable 80,111
Nelaney, +apital 86,111
-ngstrom, +apital 66,111
Lahey, +apital %4,111
*imon, +apital 6>,111
Jecord initial investments in N-L* partnership.
b. !a bases(
Nelaney -ngstrom Lahey *imon
!a basis of assets contributed /21,111 /60,111 / 88,111 /60,111
$dd( Partner.s share of other
partners. liabilities assumed
by the partnership(
/80,111 from Nelaney %32 &,111 &,111 &,111
/%1,111 from -ngstrom %32 6,411 6,411 6,411
/%4,111 from Lahey %32 8,'41 8,'41 8,'41
Less( Partner.s liabilities
assumed by other partners(
/80,111 832 (6',111)
/%1,111 832 (',411)
/%4,111 832 (%%,641)
!otal / %&,641 /8%,641 / 88,641 /2%,641
15-53
P15-1 F0&/%',0( 01 % P%&'()&*+,- %(3 A5508%',0( 01 P&01,' %(3 $0**
Part I(
Daskins and *ells Partnership
@alance *heet
$t Panuary 6, 61R8
$ssets
+urrent assets(
+ash / 44,111
!emporary Investments >%,411
!rade $ccounts Jeceivable /'1,111
Less( $llowance for uncollectible accounts (2,411) 04,411
Eote Jeceivable 41,111
Inventories 06,411
!otal +urrent $ssets /8%2,411
Property, Plant, and -quipment(
@uilding (less accumulated depreciation of /681,111) 8'1,111
Intangible $ssets(
+ustomer Lists 01,111
!otal $ssets /'22,411
Liabilities and Partnership +apital(
+urrent Liabilities(
+urrent Portion of Gortgage Payable / 64,111
Long9term Liabilities(
Gortgage Payable, less current portion %41,111
Partnership +apital(
Daskins, +apital /86',111
*ells, +apital 626,411 40&,411
!otal Liabilities and Partnership +apital /'22,411
15-54
P15-1 (continued)
Part II(
a. Daskins and *ells Partnership
Income *tatement
<or the Oear -nded Necember 8%, 61R8
Jevenues / 041,111
Less( +ost of =oods *old (861,111)
=ross Profit / 881,111
)perating -penses(
*elling, =eneral, and $dministrative -penses ('1,111)
Eet Income / 601,111
Eote that salaries paid to partners and the bonus paid to Daskins are distributions of
partnership net income and are not epenses of the partnership.
b. Nescription Daskins *ells !otal
%17 bonus to Daskins / 60,111 / 60,111
*alaries to each partner &1,111 / '1,111 %01,111
Jesidual net income( /'2,111 %2,>11 4&,611 '2,111
!otal /%81,>11 /%6&,611 /601,111
+apital
c. Nescription Daskins *ells !otal
+apital balances, Panuary 8, 61R8 /86',111 /626,411 /40&,411
$dd( Eet income for 61R8 %81,>11 %6&,611 601,111
;ithdrawals made during the year (%1,111) (4,111) (%4,111)
+apital balances at Necember 8%, 61R8 /22',>11 /800,'11 />%2,411
d. !o find out what partnership net income would have to be for each partner to receive
the same amount of income, determine the amount of income difference that would go to
each partner for each additional dollar of partnership net income. !o illustrate, assume
that partnership net income was /60%,111 instead of /601,111. Dow would this
incremental /%,111 affect the distribution of net incomeF !o find out the answer to this
question, see the computation below.
Nescription Daskins *ells !otal
@onus to Daskins / 60,%11 / 60,%11
*alaries to each partner &1,111 / '1,111 %01,111
Jemainder to each partner (/'2,&11) %2,&>1 4&,&61 '2,&11
!otal /%8%,1>1 /%6&,&61 /60%,111
!he increase of /%,111 in partnership net income resulted in a /6>1 increase in Daskins,
share of net income and a /'61 increase in *ells, share of net income. $nother way to
look at this is that for a /%,111 increase in partnership net income, *ells will receive
/221 more, or 227 more, than Daskins (/'61 minus /6>1 5 /221 divided by /%,111).
15-55
!ake this information and use it to answer the question. $t partnership net income of
/601,111, Daskins will receive /%,011 more net income than *ells (/%81,>11 minus
/%6&,611). !ake the difference between these two incomes and divide it by 1.22.
Nividing /%,011 by 1.22 equals /8,080. $dd this amount to /601,111 to get /608,080,
the amount of partnership net income that would result in each partner receiving the
same amount of net income.
15-56

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Chapter 15

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Chapter 15 - Partnerships: Formation, Operation, and Changes in Membership

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