Log in
Accounting
1
answer
0
watching
100
views

William, Casey, and Samantha are forming a partnership. Below is a table outlining the contributions of each partner.

William Casey Samantha

Cash $ 15,000 $20,000 $ 10,000

Inventory 100,000 60,000 80,000

Plant Assets 250,000 160,000

Liabilities Assumed by Partnership 130,000 90,000

In addition, Casey brings significant experience needed to run the business. It is agreed that partners will receive capital allocations equal to the market value of the net assets contributed and that Casey will receive additional capital of $75,000 and the bonus method will be applied. Two-thirds of the bonus is to come from William and one-third from Samantha. Record the journal entry for the creation of the partnership.

Watch
1
answer
0
watching
100
views

For unlimited access to Homework Help, a Homework+ subscription is required.

Casey Durgan
Casey DurganLv2
30 Sep 2019

Unlock all answers

Get 1 free homework help answer.
Already have an account? Log in
Share

Related questions

Carter Pearson is a partner in Event Promoters. His beginningpartnership capital balance for the current year is $55,500, andhis ending partnership capital balance for the current year is$62,500. His share of this year's partnership income was $5,750.What is his partner return on equity?

9.65%

9.75%

10.87%

9.20%

10.36%

Design Services is organized as a limited partnership, with MikoToori as one of its partners. Miko's capital account began the yearwith a balance of $46,900. During the year, Miko's share of thepartnership income was $9,400, and Miko received $5,900 indistributions from the partnership. What is Miko's partner returnon equity?

12.1%

19.3%

12.6%

20.0%

18.7%

The following information isavailable regarding Grace Smit's capital account in EnterpriseConsulting Group, a general partnership, for a recent year:


Beginning of theyear balance $ 30,000
Share of partnershipincome $ 10,500
Withdrawals madeduring the year $ 6,800

What is Smit's partner return onequity during the year in question?

33.0%

11.6%

51.3%

12.3%

31.2%

Maxwell and Smart are forming a partnership. Maxwell isinvesting a building that has a market value of $81,000. However,the building carries a $55,000 mortgage that will be assumed by thepartnership. Smart is investing $22,000 cash. The balance ofMaxwell's Capital account will be:

$55,000.

$81,000.

$59,000.

$26,000.

$48,000.

Harvey and Quick have decided to form a partnership. Harvey isgoing to contribute a depreciable asset to the partnership as hisequity contribution to the partnership. The following informationregarding the asset to be contributed by Harvey is available:

Historical cost ofthe asset $81,000
Accumulateddepreciation on the asset $42,500
Note payable securedby the asset* $23,000
Agreed-upon marketvalue of the asset $47,500
*willbe assumed by the partnership
Based on this information,Harvey's beginning equity balance in the partnership will be:

$23,000

$47,500

$81,000

$38,500

$24,500

Wheadon, Davis, and Singer formed a partnership with Wheadoncontributing $58,800, Davis contributing $49,000 and Singercontributing $39,200. Their partnership agreement called for theincome (loss) division to be based on the ratio of capitalinvestments. If the partnership had income of $72,000 for its firstyear of operation, what amount of income (rounded to the nearestthousand) would be credited to Singer's capital account?

$19,200.

$28,800.

$72,000.

$24,000.

$39,200.

Christie and Jergens formed a partnership with capitalcontributions of $210,000 and $310,000, respectively. Theirpartnership agreement calls for Christie to receive a $51,000 peryear salary. Also, each partner is to receive an interest allowanceequal to 9% of a partner's beginning capital investments. Theremaining income or loss is to be divided equally. If the netincome for the current year is $117,000, then Christie andJergens's respective shares are:

$58,500; $58,500.

$69,900; $27,900.

$47,250; $69,750.

$79,500; $37,500.

$38,100; $78,900.

The partnership agreement for Wilson, Pickett & Nelson, ageneral partnership, provided that profits be shared between thepartners in the ratio of their financial contributions to thepartnership. Wilson contributed $90,000, Pickett contributed$54,000 and Nelson contributed $18,000. In the partnership's firstyear of operation, it incurred a loss of $207,000. What amount ofthe partnership's loss, rounded to the nearest dollar, should beabsorbed by Nelson?

$0

$23,000

$69,000

$103,500

$51,750

Tatiana partnership

The Tatiana Partnership is a calendar year, cash basis limitedpartnership which was formed on 1 January 2014. The partnership isin the business of training attack dogs and cats (business code541990). The address for the partnership and both partners is 300Montgomery Street, Suite 1050, San Francisco, CA 94104. Allbusiness is carried on in the San Francisco Bay Area, and thepartnership has no foreign activities of any kind. The partnershipreturn is filed in Ogden, Utah. The partnership’s federal ID numberis 94-0070070.

The partnership agreement follows the provisions of IRC section704 and provides that gains, losses, and depreciation will beallocated in such a manner so as to account for the differencesbetween agreed market values and the tax basis of assetscontributed to the partnership. For example, should the agreedvalue exceed the tax basis of a contributed asset, any gain due tothe difference shall be allocated to the contributing partner uponsale of the asset. Any remaining gain shall be allocated in the“regular” ratio in which partners share income and losses.Furthermore, depreciation expense on contributed assets is to beallocated to the noncontributing partner as if the asset’s FAIRMARKET VALUE were EQUAL to its tax basis; any remainingdepreciation is to be allocated to the contributing partner.

Outside of the special IRC Section 704 allocations discussed inthe preceding paragraph, all other items are allocated in the“normal” profit and loss ratios for the partnership.

Data on the partners, the assets contributed by them, and theprofit and loss ratios agreed upon are as follows:

Tyr Slesnick (SSN; 007-06-1991), the general partner

Arekay Mitchell (SSN: 006-01-1985), the limited partner.

Tyr – 60% profit and loss ratio. Tyr contributed a parcel ofland (acquired on 1/1/1995 as investment property) and its relatedmortgage. The land originally cost $200,000 and had a fair marketvalue of $300,000 as of the date it was contributed to thepartnership. There was a $180,000 balance on the qualifiednonrecourse mortgage assumed by the partnership. The land is knownas “Whitaker Acres”. The capital contribution of the land and itsrelated mortgage was made on the date the partnership was formed.The land was used by the Tatiana Partnership as a location to trainthe dogs.

Arekay – 40% profit and loss ratio. Arekay contributed a dogtraining machine valued at $80,000. The dog training machine wasacquired on 1/1/2009 at a cost of $120,000. The machine originallyhad a ten year life (5 years left@ 1/1/2014) and is depreciated onthe straight-line method using a 10 year life at the rate of$12,000 of depreciation per year. Accumulated depreciation of$60,000 ($120,000 cost less $60,000 accumulated depreciationthrough 12/31/2013) as of the date it was contributed to thepartnership.

The partnership keeps its books on the tax basis method withappropriate supporting schedules maintained to keep track of fairmarket value where required. Each partner’s ownership of capital isper the books.

A. You need to make a journal entry to record Tyr’s capitalcontribution of the land subject ot the mortgage as of1/1/2014.

B. You need to make a journal entry to record Arekay’s capitalcontribution of the dog training machine as of 1/1/2014.

C. On 12/31/2014 (the last day of the year), the partnershippurchases a new piece of land (Darien Acres) for $4,500,000. The$4,500,000 purchase was 100% financed via a $1,000,000 RECORSE LOANfrom Union Bank and a $3,500,000 QUALIFIED NONRECOURSE FINANCINGfrom Wells Fargo bank. The recourse loan plus one year’s interestat 10% is due in full on 12/31/2014, and no interest is payableuntil maturity. The qualified nonrecourse loan requires quarterlyinterest payments (at an 8% annual rate) with the first quarterlyinterest payment of $70,000 not being due until 3/31/2015 (i.e.,next year). This land will be used as a larger site on which totrain the dogs and cats – i.e., it’ll be used as business land.

D. You need to record the depreciation expense on the dogtraining machine. Please note that the machine is deprecated usinga 10 year life for both regular and “alternative minimum tax”.Depreciation. As noted in the facts, the machine’s tax depreciationis $12,000 ($120,000 original cost divided by 10 years). If themachine’s depreciation had been based on it’s $80,000 FMV, thedepreciation based on FMV would have been $16,000 ($80,000 FMVdivided by the 5 year remaining life). You’re going to have tofigure out what to do and how to allocate the depreciation betweenthe partners.

E. The business purchased $920,000 of additional trainingequipment. This equipment was purchased on the day the partnershipwas formed, and it has been fully paid for as of the end of theyear. The partnership desires to claim the MAXIMUM depreciationallowed under the tax law, so you’ll need to compute this andprepare a journal entry recording the depreciation. The propertywas purchased on 1/2/2013.

F. The property contributed by Tyr was known as “WhitakerAcres”. This property was SOLD on July 4th of thecurrent year for $600,000 ($420,000 of cash is shown in a separateaccount, but no entry has been made to record the sale, so you’llneed to make the journal entry necessary to record the sale anddecide how to allocate the gain between the two partners.

REQUIRED:

1. Prepare journal entries to record the events listed in “A”through “F” above. Label the entries “A” through “F”>

2. Post the journal entries to the cash activity and prepare a“working trial balance”.

Well, it’s been a busy day in your office. Another of your‘colorful’ clients has come in with tax problems seeking youradvice.

Tony Stark has had a bad day. As Iron Man he was defeated by Batrocze Lepair (he talks with a bad accent, basically just leaps aroundand is considered a joke villain, hence Tony’s depression).

Tony is a general partner in “Avenge This”. As he is usuallyloaded (financially and otherwise), he bankrolled most of theoperation and owns 40% of the capital and profit interest in thefirm. However, this is mainly a services organization(super-heroing is very labor intensive). The partners never had apartnership agreement. Hank Pym was supposed to see to it but theycanned him before got started when they found out he was usingpartnership resources to develop Ultron (no, it wasn’t Stark, hewas slandered in the movie). Excess funds, as available, areinvested and produce dividends, capital gains and tax-exempt incomedepending upon the investment.

The partnership’s balance sheet on November 1was as follows:

Basis FMV

Cash $ 60,000 $ 60,000

Equipment* $100,000 $ 120,000

A/R $ 0 $ 100,000

$160,000 $ 280,000

Liabilities $ 80,000 $ 80,000

Partnership Equity

TonyStark $ 32,000 $ 80,000

SteveRogers $ 24,000 $ 60,000

BruceBanner $ 24,000 $ 60,000

$ 80,000 $ 200,000

*Armor suits, shields, quinjets, etc.

Tony has decided to retire at the end of the month (the partnershipis on a calendar year). The partnership has agreed to liquidate hisinterest in exchange for $90,000 (representing his share ofpartnership assets) and 20% of the partnership profits for the nextfive years. Tony’s outside basis—as of the meeting date—is$32,000.

The partnership estimates it will have $60,000 in profits as of theend of the month, but are unsure about December. (profits have notbeen posted yet to the balance sheet).There may be a big contractcoming in from Shield in December to take out a Hydra base with abig profit, otherwise, as they usually take the holidays off, therewould be a deficit.

Tony asks:

How will he report the principalpayments (capital gain,ordinary income and why)? What is included?

How should he report the future payments? Should he considersomething different?

What should he consider as to this year’s income?

His partners came along. They ask:

does Tony’s retirement have any effect on the partnership’s taxreporting? That is how should they report this year’s income?

Does this affect their inside asset basis in any way (no § 754election is in place)?

Should they consider a § 754 election and why or why not?

How do they report the retirement payments?

Can they deduct any of the retirement payments to Tony? Couldthey renegotiate some payments so they would be deductible?

Weekly leaderboard

Home
Homework Help 3,900,000
Accounting 580,000
Start filling in the gaps now
Log in