EXERCISES
Cash................................................................................................. 13,000
Accounts Receivable....................................................................... 130,000
Merchandise Inventory.................................................................. 84,700
Equipment....................................................................................... 69,500
Allowance for Doubtful Accounts.......................................... 10,200
Gwen Delk, Capital.................................................................. 287,000
Cash................................................................................................. 40,000
Accounts Receivable....................................................................... 75,000
Land................................................................................................ 250,000
Equipment....................................................................................... 21,000
Allowance for Doubtful Accounts.......................................... 6,000
Accounts Payable..................................................................... 22,500
Notes Payable............................................................................ 65,000
Brandi Bonds, Capital............................................................. 292,500
Hassell Lawson
a. .......................................................................................................... $ 100,000 $100,000
b. ......................................................................................................... 150,000 50,000
c. ......................................................................................................... 96,800 103,200
d. ......................................................................................................... 90,000 110,000
e. ......................................................................................................... 102,000 98,000
Details
Hassell Lawson Total
a. Net income (1:1)................................................... $ 100,000 $ 100,000 $200,000
b. Net income (3:1)................................................... $150,000 $ 50,000 $200,000
c. Interest allowance................................................ $ 36,000 $ 12,000 $ 48,000
Remaining income (2:3)...................................... 60,800 91,200 152,000
Net income............................................................ $ 96,800 $ 103,200 $200,000
d. Salary allowance.................................................. $ 50,000 $ 70,000 $120,000
Remaining income (1:1)...................................... 40,000 40,000 80,000
Net income............................................................ $ 90,000 $ 110,000 $200,000
e. Interest allowance................................................ $ 36,000 $ 12,000 $ 48,000
Salary allowance.................................................. 50,000 70,000 120,000
Remaining income (1:1)...................................... 16,000 16,000 32,000
Net income............................................................ $ 102,000 $ 98,000 $200,000
Hassell Lawson
a. ................................................................................................... $190,000 $190,000
b. ................................................................................................... 285,000 95,000
c. ................................................................................................... 168,800 211,200
d. ................................................................................................... 180,000 200,000
e. ................................................................................................... 192,000 188,000
Details
Hassell Lawson Total
a. Net income (1:1)......................................................... $190,000 $190,000 $380,000
b. Net income (3:1)......................................................... $285,000 $ 95,000 $380,000
c. Interest allowance...................................................... $ 36,000 $ 12,000 $ 48,000
Remaining income (2:3)............................................ 132,800 199,200 332,000
Net income.................................................................. $168,800 $211,200 $380,000
d. Salary allowance........................................................ $ 50,000 $ 70,000 $120,000
Remaining income (1:1)............................................ 130,000 130,000 260,000
Net income.................................................................. $180,000 $200,000 $380,000
e. Interest allowance...................................................... $ 36,000 $ 12,000 $ 48,000
Salary allowance........................................................ 50,000 70,000 120,000
Remaining income (1:1)............................................ 106,000 106,000 212,000
Net income.................................................................. $192,000 $188,000 $380,000
Ex. 12–5
Casey Logan
Fisher Baylor Total
Salary allowances................................................... $ 40,000 $ 35,000 $ 75,000
Remainder (net loss, $20,000 plus $75,000
salary allowances) divided equally.................. (47,500) (47,500) (95,000)
Net loss..................................................................... $ (7,500) $ (12,500) $(20,000)
The partners can divide net income in any ratio that they wish. However, in the absence of an agreement, net income is divided equally between the partners. Therefore, Jasmine’s conclusion was correct, but for the wrong reasons. In addition, note that the monthly drawings have no impact on the division of income.
Ex. 12–7
a.
Net income: $188,000
Salary allowance..................................................... $ 75,000 $60,000 $135,000
Remaining income.................................................. 31,800 21,200 53,000
Net income............................................................... $106,800 $81,200 $188,000
Bowman remaining income: ($188,000 – $135,000) × 3/5
Mapes remaining income: ($188,000 – $135,000) × 2/5
b.
(1)
Income Summary........................................................................... 188,000
B. Bowman, Member Equity................................................... 106,800
S. Mapes, Member Equity....................................................... 81,200
(2)
B. Bowman, Member Equity......................................................... 75,000
S. Mapes, Member Equity............................................................. 60,000
B. Bowman, Drawing............................................................... 75,000
S. Mapes, Drawing................................................................... 60,000
Note: The reduction in members’ equity from withdrawals would be disclosed on the statement of members’ equity but does not affect the allocation of net income in part (a) of this exercise.
a.
Daily Sun
WYXT Lindsey Newspaper,
Partners Wilson LLC Total
Salary allowance............................. $115,600 $115,600
Interest allowance........................... $ 24,0001 6,0002 $ 14,4003 44,400
Remaining income (4:3:3).............. 196,000 147,000 147,000 490,000
Net income....................................... $220,000 $268,600 $161,400 $650,000
112% × $200,000
212% × $50,000
312% × $120,000
b.
Dec. 31, 2010 Income Summary..................................................... 650,000
WYXT Partners, Member Equity.................... 220,000
Lindsey Wilson, Member Equity...................... 268,600
Daily Sun Newspaper, LLC, Member
Equity............................................................ 161,400
Equity............................................................ 161,400
Dec. 31, 2010 WYXT Partners, Member Equity.......................... 24,000
Lindsey Wilson, Member Equity............................ 121,600
Daily Sun Newspaper, LLC, Member Equity ..... 14,400
WYXT Partners, Drawing................................ 24,000
Lindsey Wilson, Drawing.................................. 121,600
Daily Sun Newspaper, LLC, Drawing............. 14,400
c.
INTERMEDIA, LLC
Statement of Members’ Equity
For the Year Ended December 31, 2010
Daily Sun
WYXT Lindsey Newspaper,
Partners Wilson LLC Total
Members’ equity, January 1, 2010............... $200,000 $ 50,000 $120,000 $ 370,000
Additional investment during the year....... 50,000 50,000
$250,000 $ 50,000 $120,000 $ 420,000
Net income for the year................................. 220,000 268,600 161,400 650,000
$470,000 $318,600 $281,400 $1,070,000
Withdrawals during the year....................... 24,000 121,600 14,400 160,000
Members’ equity, December 31, 2010.......... $446,000 $197,000 $267,000 $ 910,000
a.
Jan. 31 Partner, Drawing....................................... 30,000,000
Cash....................................................... 30,000,000
b.
Dec. 31 Income Summary....................................... 400,000,000
Partner, Capital.................................... 400,000,000
c.
Dec. 31 Partner, Capital.......................................... 360,000,000*
Partner, Drawing................................. 360,000,000
*12 months × £30 million
a. and b.
Lia Wu, Capital........................................................................ 50,000
Kara Oliver, Capital........................................................... 50,000
$150,000 × 1/3
Note: The sale to Oliver is not a transaction of the partnership; so, the sales price is not considered in this journal entry.
a. $1,922,000 ($940,000,000/489), rounded
b. $400,000 ($195,600,000/489)
c. A new partner might contribute more than $400,000 because of goodwill attributable to the firm’s reputation, future income potential, and a strong client base, etc.
a. (1) Brad Hughes, Capital (20% × $120,000)........................ 24,000
Mitchell Isaacs, Capital (25% × $100,000)...................... 25,000
Leah Craft, Capital.................................................... 49,000
(2) Cash................................................................................... 50,000
Jayme Clark, Capital.................................................. 50,000
b. Brad Hughes ($120,000 – $24,000)............................... 96,000
Mitchell Isaacs ($100,000 – $25,000)............................. 75,000
Leah Craft...................................................................... 49,000
Jayme Clark................................................................... 50,000
Ex. 12–13
a. Cash......................................................................................... 45,000
Travis Harris, Capital............................................................. 7,500
Keelyn Kidd, Capital.............................................................. 7,500
Felix Flores, Capital........................................................... 60,000
b. Travis Harris.................................................................. 52,500
Keelyn Kidd................................................................... 82,500
Felix Flores..................................................................... 60,000
Ex. 12–14
a. Medical Equipment.................................................................... 25,000
Douglass, Member Equity................................................... 10,0001
Finn, Member Equity.......................................................... 15,0002
1$25,000 × 2/5 = $10,000
2$25,000 × 3/5 = $15,000
b. (1) Cash...................................................................................... 310,000
Douglass, Member Equity............................................. 22,000
Finn, Member Equity.................................................... 33,000
Koster, Member Equity................................................. 255,000
Supporting calculations for the bonus:
Equity of Douglass................................................ $250,000
Equity of Finn....................................................... 290,000
Contribution by Koster........................................ 310,000
Total equity after admitting Koster..................... $850,000
Koster’s equity interest after admission.............. × 30%
Koster’s equity after admission........................... $255,000
Contribution by Koster........................................ $310,000
Koster’s equity after admission........................... 255,000
Bonus paid to Douglass and Finn........................ $ 55,000
Douglass: $55,000 × 2/5 = $22,000
Finn: $55,000 × 3/5 = $33,000
b. (2) Cash...................................................................................... 160,000
Douglass, Member Equity................................................... 6,000
Finn, Member Equity.......................................................... 9,000
Koster, Member Equity................................................. 175,000
Supporting calculations for the bonus:
Equity of Douglass................................................ $250,000
Equity of Finn....................................................... 290,000
Contribution by Koster........................................ 160,000
Total equity after admitting Koster..................... $700,000
Koster’s equity interest after admission.............. × 25%
Koster’s equity after admission........................... $175,000
Contribution by Koster........................................ 160,000
Bonus paid to Koster............................................ $ 15,000
Douglass: $15,000 × 2/5 = $6,000
Finn: $15,000 × 3/5 = $9,000
a. J. Taylor, Capital................................................................. 4,000
K. Garcia, Capital................................................................ 4,000
Equipment................................................................ 8,000
b. (1) Cash................................................................................ 50,000
J. Taylor, Capital........................................................... 3,100
K. Garcia, Capital.......................................................... 3,100
L. Harris, Capital..................................................... 56,200
Supporting calculations for the bonus:
Equity of Taylor............................................................................... $ 96,000
Equity of Garcia.............................................................................. 135,000
Contribution by Harris.................................................................... 50,000
Total equity after admitting Harris................................................ $281,000
Harris’s equity interest after admission......................................... × 20%
Harris’s equity after admission....................................................... $ 56,200
Contribution by Harris.................................................................... 50,000
Bonus paid to Harris........................................................................ $ 6,200
The bonus to Harris is debited equally between Taylor’s and Garcia’s capital accounts.
b. (2) Cash................................................................................ 125,000
J. Taylor, Capital..................................................... 9,100
K. Garcia, Capital.................................................... 9,100
L. Harris, Capital..................................................... 106,800
Supporting calculations for the bonus:
Equity of Taylor............................................................................... $ 96,000
Equity of Garcia.............................................................................. 135,000
Contribution by Harris.................................................................... 125,000
Total equity after admitting Harris................................................ $356,000
Harris’s equity interest after admission......................................... × 30%
Harris’s equity after admission....................................................... $106,800
Contribution by Harris.................................................................... $125,000
Harris’s equity after admission....................................................... 106,800
Bonus paid to Taylor and Garcia................................................... $ 18,200
The bonus to Taylor and Garcia is credited equally between Taylor’s and Garcia’s capital accounts.
Angel Investor Associates
Statement of Partnership Equity
For the Year Ended December 31, 2010
Total
Jen Teresa Jaime Partner-
Wilson, McDonald, Holden, ship
Capital Capital Capital Capital
Partnership capital, January 1, 2010............... $ 45,000 $ 55,000 $100,000
Admission of Jaime Holden............................... — — $ 25,000 25,000
Salary allowance................................................ 30,000 30,000
Remaining income.............................................. 46,800 57,200 26,000 130,000
Less: Partner withdrawals................................ (38,400) (28,600) (13,000) (80,000)
Partnership capital, December 31, 2010.......... $ 83,400 $ 83,600 $ 38,000 $205,000
Admission of Jaime Holden:
Equity of initial partners prior to admission........................... $100,000
Contribution by Holden............................................................ 25,000
Total............................................................................................ $125,000
Holden’s equity interest after admission.................................. × 20%
Holden’s equity after admission................................................ $ 25,000
Contribution by Holden............................................................ 25,000
No bonus..................................................................................... $ 0
Net income distribution:
The income-sharing ratio is equal to the proportion of the capital balances after admitting Holden according to the partnership agreement:
Jen Wilson: 
= 36%
= 36%Teresa McDonald: 
= 44%
= 44%Jaime Holden: 
= 20%
= 20%These ratios can be multiplied by the $130,000 remaining income ($160,000 – $30,000 salary allowance to Wilson) to distribute the earnings to the respective partner capital accounts.
Withdrawals:
Half of the remaining income is distributed to the three partners. Wilson need not take the salary allowance as a withdrawal but may allow it to accumulate in the member equity account.
a. Merchandise Inventory.......................................................... 24,000
Allowance for Doubtful Accounts................................... 5,800
Luke Gilbert, Capital....................................................... 7,8001
Marissa Cohen, Capital.................................................... 5,2002
Tyrone Cobb, Capital....................................................... 5,2002
1($24,000 – $5,800) × 3/7
2($24,000 – $5,800) × 2/7
b. Luke Gilbert, Capital............................................................. 252,8001
Cash................................................................................... 52,800
Notes Payable.................................................................... 200,000
1$245,000 + $7,800
Ex. 12–18
a. The income-sharing ratio is determined by dividing the net income for each member by the total net income. Thus, in 2010, the income-sharing ratio is as follows:
Nevada Properties, LLC: 
= 30%
= 30% Star Holdings, LLC: 
= 70%
= 70% Or a 3:7 ratio
b. Following the same procedure as in (a):
Nevada Properties, LLC: 
= 25%
= 25%Star Holdings, LLC: 
= 55%
= 55%Randy Reed: 
= 20%
= 20%c. Randy Reed provided a $290,000 cash contribution to the business. The amount credited to his member equity account is this amount less a $20,000 bonus paid to the other two members, or $270,000.
Ex. 12–18 Concluded
d. The positive entries to Nevada Properties and Star Holdings are the result of a bonus paid by Randy Reed.
e. Randy Reed acquired a 20% interest in the business, computed as follows:
Randy Reed’s contribution.......................................... $ 290,000
Nevada Properties, LLC, member equity.................. 540,000
Star Holdings, LLC, member equity.......................... 520,000
Total............................................................................... $1,350,000
Reed’s ownership interest after admission
($270,000 ÷ $1,350,000)................................................ 20%
($270,000 ÷ $1,350,000)................................................ 20%
a.
Cash balance........................................................... $ 16,000
Sum of capital accounts......................................... 20,000
Loss from sale of noncash assets........................... $ 4,000
Pryor Lester
Capital balances before realization....................... $ 12,000 $8,000
b. Division of loss on sale of noncash assets 2,000* 2,000*
Balances................................................................... $ 10,000 $6,000
c. Cash distributed to partners.................................. 10,000 6,000
Final balances......................................................... $ 0 $ 0
*$4,000/2
Ex. 12–20
Bradley Barak Total
Capital balances before realization....................... $ 26,000 $35,000 $61,000
Division of gain on sale of noncash assets
[($76,000 – $61,000)/2]...................................... 7,500 7,500
Capital balances after realization.......................... $ 33,500 $42,500
Cash distributed to partners.................................. 33,500 42,500
Final balances......................................................... $ 0 $ 0
a. Deficiency
b. $72,500 ($28,000 + $62,500 – $18,000)
c. Cash.......................................................................................... 18,000
Shen, Capital....................................................................... 18,000
Matthews Williams Shen
Capital balances after realization.............. $ 28,000 $ 62,500 $(18,000) Dr.
Receipt of partner deficiency.................... 18,000
Capital balances after eliminating
deficiency............................................... $ 28,000 $ 62,500 $ 0
deficiency............................................... $ 28,000 $ 62,500 $ 0
a. Cash should be distributed as indicated in the following tabulation:
Houston Alsup Cross Total
Capital invested....................................... $ 250 $ 380 $ — $ 630
Net income............................................... + 130 + 130 + 130 + 390
Capital balances and cash
distribution.......................................... $ 380 $ 510 $ 130 $ 1,020
b. Cross has a capital deficiency of $30, as indicated in the following tabulation:
Houston Alsup Cross Total
Capital invested....................................... $ 250 $ 380 $ — $ 630
Net loss..................................................... – 30 – 30 – 30 – 90
Capital balances...................................... $ 220 $ 350 $ 30 Dr. $ 540
Ex. 12–23
Hilliard Downey Petrov
Capital balances after realization..................... $(24,000) $ 90,000 $ 64,000
Distribution of partner deficiency.................... 24,000 (16,000)1 (8,000)2
Capital balances after deficiency
distribution.................................................. $ 0 $ 74,000 $ 56,000
distribution.................................................. $ 0 $ 74,000 $ 56,000
1$24,000 × 2/3
2$24,000 × 1/3
DOVER, GOLL, AND CHAMBERLAND
Statement of Partnership Liquidation
For the Period Ending July 1–29, 2010
Capital
Noncash Dover Goll Chamberland
Cash + Assets = Liabilities + (3/6) + (2/6) + (1/6)
Balances before realization..................... $ 55,000 $ 92,000 $ 40,000 $ 35,000 $ 50,000 $ 22,000
Sale of assets and division
of loss.................................................... + 74,000 – 92,000 — – 9,000 – 6,000 – 3,000
Balances after realization........................ $129,000 $ 0 $ 40,000 $ 26,000 $ 44,000 $ 19,000
Payment of liabilities............................... – 40,000 — – 40,000 — — —
Balances after payment of
liabilities............................................... $ 89,000 $ 0 $ 0 $ 26,000 $ 44,000 $ 19,000
Cash distributed to partners................... – 89,000 — — – 26,000 – 44,000 – 19,000
Final balances.......................................... $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
a.
CAPITOL SALES, LLC
Statement of LLC Liquidation
For the Period May 1–31, 2010
Member Equity
Noncash Gordon Hightower Mills
Cash + Assets = Liabilities + (2/5) + (2/5) + (1/5)
Balances before realization..................... $ 8,000 $ 94,000 $ 30,000 $ 15,000 $ 35,000 $ 22,000
Sale of assets and division
of gain.................................................. + 116,500 – 94,000 — + 9,000 + 9,000 + 4,500
Balances after realization........................ $ 124,500 $ 0 $ 30,000 $ 24,000 $ 44,000 $ 26,500
Payment of liabilities............................... – 30,000 — – 30,000 — — —
Balances after payment of
liabilities............................................... $ 94,500 $ 0 $ 0 $ 24,000 $ 44,000 $ 26,500
Distribution of cash to members............ – 94,500 — — – 24,000 – 44,000 – 26,500
Final balances.......................................... $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
b.
Gordon, Member Equity......................................................... 24,000
Hightower, Member Equity..................................................... 44,000
Mills, Member Equity.............................................................. 26,500
Cash..................................................................................... 94,500
a.
(1) Income Summary.................................................................... 124,000
Hossam Abdel-Raja, Capital............................................ 62,000
Aly Meyer, Capital............................................................ 62,000
(2) Hossam Abdel-Raja, Capital.................................................. 48,000
Aly Meyer, Capital.................................................................. 39,000
Hossam Abdel-Raja, Drawing......................................... 48,000
Aly Meyer, Drawing......................................................... 39,000
b.
ABDEL-RAJA AND MEYER
Statement of Partners’ Equity
For the Year Ended December 31, 2010
Hossam Aly
Abdel-Raja Meyer Total
Capital, January 1, 2010........................................ $ 90,000 $ 65,000 $ 155,000
Additional investment during the year................. 10,000 — 10,000
$100,000 $ 65,000 $ 165,000
Net income for the year.......................................... 62,000 62,000 124,000
$162,000 $127,000 $289,000
Withdrawals during the year................................ 48,000 39,000 87,000
Capital, December 31, 2010................................... $114,000 $ 88,000 $202,000
a. Revenue per professional staff, 2007: 
= $303,200 rounded
= $303,200 rounded Revenue per professional staff, 2006: 
= $296,100 rounded
= $296,100 roundedb. The revenues increased between the two years from $8,770 million to $9,850 million, or 12.3% [($9,850 – $8,770)/$8,770]. Revenue growth has been strong, mostly resulting from Sarbanes-Oxley work. The number of employees has grown at a slightly slower rate, from 29,614 to 32,483, or 9.7% [(32,483 – 29,614)/29,614]. As a result, the revenue per professional staff employee has increased by approximately $7,000, from $296,100 to $303,200. This slight increase in efficiency is likely due to the firm learning how to efficiently provide the services introduced by the Sarbanes-Oxley Act of 2002.
a. Revenue per employee, 2008: 
= $135,000
= $135,000 Revenue per employee, 2009: 
= $110,000
= $110,000b. Revenues increased between the two years; however, the number of employees has increased at a faster rate. Thus, the revenue per employee declined from $135,000 in 2008 to $110,000 in 2009. This indicates that the efficiency of the firm has declined in the two years. This is likely the result of the expansion. That is, the large increase in the employment base is the likely result of the expansion into the four new cities. These new employees may need to be trained and thus are not as efficient in their jobs as the more experienced employees in the existing cities. Often, a business will suffer productivity losses in the midst of significant expansion because of the inexperience of the new employees.
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