Gorman and Morton form a partnership on May 1, 2019. Gorman contributes cash of $59,000; Morton...

Gorman and Morton form a partnership on May 1, 2019. Gorman contributes cash of $59,000; Morton conveys title to the following properties to the partnership:

	Book Value		Fair Value
Equipment	$	19,500	$	37,000
Licensing agreements		39,500		45,000

The partners agree to start their partnership with equal capital balances. No goodwill is to be recognized.

According to the articles of partnership written by the partners, profits and losses are allocated based on the following formula:

Gorman receives a compensation allowance of $900 per month.
All remaining profits and losses are split 30:70 between Gorman and Morton, respectively.
Each partner can make annual cash drawings of $7,000 beginning in 2020.

Net income of $15,500 is earned by the business during 2019.

Steele is invited to join the partnership on January 1, 2020. Because of her business reputation and financial expertise, she is given a 40 percent interest for $63,000 cash. The bonus approach is used to record this investment, made directly to the business. The articles of partnership are amended to give Steele a $3,000 compensation allowance per month and an annual cash drawing of $14,000. Remaining profits are now allocated:


Gorman	10	%
Morton	50
Steele	40

All drawings are taken by the partners during 2020. At year-end, the partnership reports net income of $102,000.

On January 1, 2021, Frank (previously a partnership employee) is admitted into the partnership. Each partner transfers 10 percent to Frank, who makes the following payments directly to the partners:


Gorman	$	8,207
Morton		7,955
Steele		13,188

Once again, the articles of partnership must be amended to allow for the entrance of the new partner. This change entitles Frank to a compensation allowance of $700 per month and an annual drawing of $6,000. Profits and losses are now assigned as follows:


Gorman	14.0	%
Morton	42.0
Steele	34.0
Frank	10.0

For the year of 2021, the partnership earned a profit of $49,900, and each partner withdrew the allowed amount of cash.

Prepare schedules that determine the capital balances for the individual partners as of the end of each year 2019 through 2021.

Solutions

Expert Solution

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

Boswell and Johnson form a partnership on May 1, 2016. Boswell contributes cash of $51,000; Johnson...

Boswell and Johnson form a partnership on May 1, 2016. Boswell contributes cash of $51,000; Johnson conveys title to the following properties to the partnership: Book Value Fair Value Land $ 15,500 $ 29,000 Building and equipment 35,500 37,000 The partners agree to start their partnership with equal capital balances. No goodwill is to be recognized. According to the articles of partnership written by the partners, profits and losses are allocated based on the following formula: Boswell receives a compensation...

Boswell and Johnson form a partnership on May 1, 2016. Boswell contributes cash of $53,000; Johnson...

Boswell and Johnson form a partnership on May 1, 2016. Boswell contributes cash of $53,000; Johnson conveys title to the following properties to the partnership: Book Value Fair Value Land $ 16,500 $ 31,000 Building and equipment 36,500 39,000 The partners agree to start their partnership with equal capital balances. No goodwill is to be recognized. According to the articles of partnership written by the partners, profits and losses are allocated based on the following formula: Boswell receives a compensation...

Boswell and Johnson form a partnership on May 1, 2016. Boswell contributes cash of $69,000; Johnson...

Boswell and Johnson form a partnership on May 1, 2016. Boswell contributes cash of $69,000; Johnson conveys title to the following properties to the partnership: Book Value Fair Value Land $ 24,500 $ 47,000 Building and equipment 44,500 55,000 The partners agree to start their partnership with equal capital balances. No goodwill is to be recognized. According to the articles of partnership written by the partners, profits and losses are allocated based on the following formula: Boswell receives a compensation...

Boswell and Johnson form a partnership on May 1, 2016. Boswell contributes cash of $60,000; Johnson...

Boswell and Johnson form a partnership on May 1, 2016. Boswell contributes cash of $60,000; Johnson conveys title to the following properties to the partnership: Book Value Fair Value Land $ 20,000 $ 38,000 Building and equipment 40,000 46,000 The partners agree to start their partnership with equal capital balances. No goodwill is to be recognized. According to the articles of partnership written by the partners, profits and losses are allocated based on the following formula: Boswell receives a compensation...

Emma and Laine form the equal EL Partnership. Emma contributes cash of $100,000. Laine contributes property...

Emma and Laine form the equal EL Partnership. Emma contributes cash of $100,000. Laine contributes property with an adjusted basis of $40,000 and a fair market value of $100,000. If an amount is zero, enter "0". a. How much gain, if any, must Emma and Laine recognize on the contributions? Emma recognizes a gain of $_________ on the transfer and Laine recognizes a gain of $____________. b. Emma's tax basis in her partnership interest is $___________. Her § 704(b) book...

Joe and Jim form a partnership on 01/01/2019. The written partnership agreement calls for cash contributions...

Joe and Jim form a partnership on 01/01/2019. The written partnership agreement calls for cash contributions of $45,000 and $55,000, respectively, on 01/01/2019. Yearly salaries are to be paid in the amounts of $120,000 and $80,000, respectively. Net income/loss is to be divided as follows: In addition to the salaries paid to the two partners, an interest allowance of 10% per year is to be paid on the partners' capital balance at the beginning of the year, after which the...

Fred contributes cash of $350,000 to Strumble Partnership for his 50% interest in the partnership. For...

Fred contributes cash of $350,000 to Strumble Partnership for his 50% interest in the partnership. For his 50% interest Gary contibutes a building with a fairmarket value of $550,000 and a basis of $250,000. The building is subject to a mortgage of $200,000. Net income for Strumble for 2019 is $100,000, Strumble borrows an additional $50,000 during 2019 and makes a distribution to each partner of $20,000. Assuming that the partners share profits and losses equally what is Gary's basis...

103. Cox, North, and Lee form a partnership. Cox contributes $204,000, North contributes $170,000, and Lee...

103. Cox, North, and Lee form a partnership. Cox contributes $204,000, North contributes $170,000, and Lee contributes $306,000. Their partnership agreement calls for a 6% interest allowance on the partner's capital balances with the remaining income or loss to be allocated equally. If the partnership reports income of $154,800 for its first year, what amount of income is credited to North's capital account? 103B. Farmer and Taylor formed a partnership with capital contributions of $250,000 and $300,000, respectively. Their partnership...

Problem 21-28 (LO. 3, 8) Emma and Laine form the equal EL Partnership. Emma contributes cash...

Problem 21-28 (LO. 3, 8) Emma and Laine form the equal EL Partnership. Emma contributes cash of $100,000. Laine contributes property with an adjusted basis of $40,000 and a fair market value of $100,000. If an amount is zero, enter "0". a. How much gain, if any, must Emma and Laine recognize on the contributions? Emma recognizes a gain of $ on the transfer and Laine recognizes a gain of $. b. Emma's tax basis in her partnership interest is...

A and B form the equal AB partnership. A contributes property (FMV = $200,000, basis =...

A and B form the equal AB partnership. A contributes property (FMV = $200,000, basis = $100,000) and B contributes $200,000 cash. The property is depreciated straight line over a 10 year life for both book and tax purposes. The partnership also has other property (FMV = $280,000, basis = $280,000) that is depreciated straight line over 10 years. (1) Under Code Sec. 704(c), how much of the tax depreciation of the contributed property by A in the first year...

Subjects