Advanced Accounting Assignment
Use the following information for questions 1, and 2.
Willis and Rite share profits and losses equally. Willis and Rite receive salary allowances of $20,000 and $30,000, respectively, and both partners receive 10% interest on their average capital balances. Willis is entitled to a bonus of 5% after deduction of the bonus. Partners' drawings are not used in determining the average capital balances. Total net income for 2009 is $126,000.
Willis Rite
January 1 capital balances $100,000 $120,000
Yearly drawings ($1,500 a month) 18,000 18,000
Permanent withdrawals of capital:
July 1 (12,000)
June 1 (15,000)
Additional investments of capital:
August 1 40,000
November 1 50,000
1. What is the weighted-average capital for Willis and Rite in 2009?
2. What will be the final profit allocations for Willis and Rite in 2009?
Use the following information for questions 3 and 4.
A summary balance sheet for the Able, Baker, and Charlie partnership appears below. Able, Baker, and Charlie share profits and losses in a ratio of 2:3:5, respectively.
Assets
Cash $ 100,000
Inventory 125,000
Marketable securities 200,000
Land 100,000
Building-net 500,000
Total assets $1,025,000
Equities
Able, capital $ 425,000
Baker, capital 400,000
Charlie, capital 200,000
Total equities $1,025,000
The partners agree to admit Delta for a one-fifth interest. The fair market value of partnership land is appraised at $200,000 and the fair market value of inventory is $175,000. The assets are to be revalued prior to the admission of Delta and there is $30,000 of goodwill that attaches to the old partnership.
3. By how much will the capital accounts of Able, Baker, and Charlie increase, respectively, due to the revaluation of the assets and the recognition of goodwill?
4. How much cash will Delta have to invest to acquire a one-fifth interest?