Admission/Withdrawal of PartnersMerrill, Lynch, and Pierce are partners with current capital balances of $10,000, $15,00...

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Merrill, Lynch, and Pierce are partners with current

April 14, 2018

Admission/Withdrawal of Partners

Merrill, Lynch, and Pierce are partners with current capital balances of $10,000, $15,000, and
$5,000, respectively. The profit and loss sharing ratio is 1:2:3, respectively. Consider each of
the following situations independently. (That is, for each case assume the data shown above).
Be sure to show your work. Do not try to cram all of your work in the space below – use
additional sheets of paper (or you may complete in Excel or Word).
CASE A: Suppose Fenner is admitted to the partnership and given a 25% share of ownership
in exchange for a cash contribution of $10,000? What will Fenner’s capital account balance be?
$_______________

CASE B: Suppose Smith is admitted to the partnership and given a 20% share of ownership in
exchange for a cash contribution of $10,000? What will Lynch’s capital balance be?
$_________________

CASE C: Suppose Fenner is admitted to the partnership with a 10% share of ownership in
exchange for an $8,000 contribution? What will Pierce’s capital balance be?
$__________________

CASE D: Suppose Merrill withdraws from the partnership. He takes $15,000 in full settlement
of his equity. What will the capital account balance of Lynch be?
$___________________

CASE E: Suppose that the partnership is to be liquidated because Pierce is personally
bankrupt. Assume there is a loss on conversion of non-cash assets to cash of $12,000. What
will be the amount of cash that Merrill will receive from the partnership in liquidation? Complete
a schedule of cash payments to arrive at your final answer.
$______________________

CASE F: Fenner paid $8,000 to Merrill for one-half of Merrill’s partnership interest. What is
Fenner’s capital account balance after the payment?
$_______________________
Profit and Loss Allocation

Tinker, Evers and Chance operate a sports partnership. Their capital balances are $20,000,
$5,000, and $8,000 respectively. Profits and losses are allocated on a basis that includes
interest on capital balances, salaries, and the remainder in a fixed ratio. In each independent
case below, determine the allocation of income to each partner. Show your work (the best way
to complete each case is to use a net income schedule illustrated in your textbook). Do not try
to cram all of your work in the space below – use additional sheets of paper (or you may
complete in Excel or Word).

CASE A: Net income: $60,000; Interest on capital balances 6%; Salaries: Tinker $8,000,
Evers $6,000, Chance $4,000; Fixed Ratio: Tinker 60%, Evers 20%, Chance 20%

CASE B: Net income: $90,000; Interest on capital balances 15%; Salaries: Tinker $10,000,
Evers $4,000, Chance $14,000; Fixed Ratio: Tinker 30%, Evers 30%, Chance 40%

CASE C: Net loss: ($10,000); Interest on capital balances 10%; Salaries: Tinker $6,000,
Evers $9,000, Chance $7,000; Fixed Ratio: Tinker 10%, Evers 50%, Chance 40%










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