Question

PART I: In January of Yr1, Zack Ward decided to go into business in Lafayette, Louisiana to sell pet supplies via the internet to individual and commercial customers across the United States. You have been hired as the chief accountant/management consultant for the new company.

1. Zack is unsure about the form of business ownership he should select. He knows he may organize as a sole proprietorship. List the advantages and disadvantages.

2. On January 1, Yr1, Zack established his business as a sole proprietorship with an initial cash investment of $75,000. During Yr1, the business had revenues of $60,000 and expenses of $50,000, resulting in a profit of $10,000. Make the general journal entry to record the establishment of the proprietorship. Also, prepare the closing entries at the end of the year.

PART II: In January of Yr1, Casey Bundy decided to go into business in Lafayette, Louisiana as a dog walker and pet sitter. He has come to you for advice.

1. On January 1, Yr1, Casey established his business as a sole proprietorship with an initial cash investment of $5,000. During Yr1, the business had revenues of $40,000 and expenses of $22,000, resulting in a profit of $18,000. Make the general journal entry to record the establishment of the proprietorship. Also, prepare the closing entries at the end of the year.

PART III: In January of Yr1, Zack Ward and Rocky Hazelwood, college friends, decided to go into business in Lafayette, Louisiana to sell pet supplies via the internet to individual and commercial customers across the United States. You have been hired as the chief accountant/management consultant for the new company.

1. Zack is unsure about the form of business ownership they should select. He knows he may organize as a partnership. List the advantages and disadvantages.

2. In forming the partnership, Zack invests the following: Cash $60,000; Equipment with a Fair Market Value of $40,000 on which Zack had taken $10,000 of depreciation. Rocky invests: Cash $85,000; Accounts Receivable at gross of $45,000 with a related Allowance for Doubtful Accounts of $3,000. The partners agree that the Allowance for Doubtful accounts should be $5,000. Prepare the entry to record the initial investment of the partners.

3. During the year, the business takes off. The beginning capital balances (from initial investments) of each partner were as follows: Zack Ward $100,000 Rocky Hazelwood $125,000 The partnership agreement states that the partnership will give Zack a salary allowance of $50,000 and Rocky will receive $45,000. In addition, interest at 10% will be paid on their beginning capital balances. Net income for the year is $120,000. Prepare a schedule for the division of income and closing entries for the partnership.

4. On January 1, Yr3 the ZackRock Partnership decided to admit Happy Meyer to the partnership. Happy had a great deal of prior experience in the area and the partners decided they needed his expertise to expand. The partners determined that Happy would contribute cash of $50,000 for a 20% interest in the partnership. The original partnership allocated all gains and losses equally and the partners determined that this should continue on Happy’s admission. At the time, the capital balances of each partner were as follows: Zack Ward $149,000 Rocky Hazelwood $151,000 Make the general journal entry to record the admission of Happy to the partnership.

5. ZackRock continued to grow. On January 1, Yr5, Zack and Rocky decided to sell a portion of their ownership interests to their brothers. Zack sold ½ of his $180,000 interest to his brother, Fritz Ward, for $55,000. Rocky sold ½ of his $160,000 interest to his brother, Charlie Cook for $73,000. Happy sold ¼ of his interest of $60,000 to Fritz for $25,000. All of the partners agreed that they would share all profits and losses equally. Make the general journal entries to record the admission of Fritz and Charlie to the partnership.

6 July 1, Yr7, Rocky decided that he wished to withdraw from the partnership to pursue his dream of a Hollywood career. The remaining partners will continue the business. At the time of the withdrawal, Rocky’s capital balance was $60,000 but he agreed to take $50,000. The partners allocate income and losses equally. Make the general journal entry to record the withdrawal of Rocky from the partnership.

7. By January 1, Yr9, the remaining partners decided to cease operations and liquidate their partnership. At the time, the capital balances of each partner were as follows: Zack Ward $ 57,000 Happy Meyer $108,000 Fritz Ward $ 35,000 Charlie Cook $ 32,000 Assuming that the partnership’s assets totaled $232,000 (all cash), make the general journal entry to record the liquidation of the partnership.

PART IV: In January of Yr1, Casey Bundy and Luke Ward, college friends, decided to go into business in Lafayette, Louisiana as professional dog walkers and pet sitters. You have been hired as the chief accountant/management consultant for the new company.

1. In forming the partnership, Casey invests the following: Cash $8,000; Equipment with a Fair Market Value of $4,000. The equipment was on Casey’s books at its original cost of $6,000 less $1,400 in depreciation. Luke invests: Cash $5,000; Accounts Receivable of $7,000 with a related Allowance for Doubtful Accounts of $600. The partners agree that the Allowance for Doubtful accounts should be $800. Prepare the entry to record the initial investment of the partners.

2. During the year, the business takes off. The beginning capital balances (from initial investments) of each partner were as follows: Casey Bundy $12,000 Luke Ward $13,200 The partnership agreement states that the partnership will give Casey a salary allowance of $30,000 and Luke will receive $28,000. In addition, interest at 10% will be paid on their beginning capital balances. Remaining income will be allocated 6:4 to Casey and Luke, respectively. Net income for the year is $75,000. Prepare a schedule for the division of income and closing entries for the partnership.

3. On January 1, Yr3 Casey and Luke decided to admit Oscar Mayer to the partnership. Oscar had been their main competition to date and had an excellent client base. The three of them decided that if they joined forces, there would be more room to grow the business. The partners determined that Oscar would contribute cash of $30,000 for a 30% interest in the partnership. The new partnership income allocation was 4:3:3 to Casey, Luke, and Oscar, respectively. At the time, the capital balances of each partner were as follows: Casey Bundy $51,888 Luke Ward $48,312 Make the general journal entry to record the admission of Oscar to the partnership.

4. The partnership continued to grow. On January 1, Yr5, Casey and Luke decided to sell a portion of their ownership interests to their brothers. Casey sold one-third of his $90,000 interest to his brother, Cooper Bundy, for $25,000. Luke sold one-half of his $80,000 interest to his brother, Pachi Ward for $42,000. Oscar sold one-quarter of his interest of $50,000 to Cooper for $12,000. All of the partners agreed that they would share all profits and losses equally. Make the general journal entries to record the admission of Cooper and Pachi to the partnership.

5. July 1, Yr7, Casey decided that he wished to withdraw from the partnership to pursue his dream of a Hollywood career. The remaining partners will continue the business. At the time of the withdrawal, Casey’s capital balance was $85,000 but he agreed to take $80,000. The partners allocate income and losses equally. Make the general journal entry to record the withdrawal of Casey from the partnership.

6. By January 1, Yr9, the remaining partners decided to cease operations and liquidate their partnership. At the time, the capital balances of each partner were as follows: Luke Ward $103,000 Oscar Mayer $ 78,000 Pachi Ward $ 49,000 Cooper Bundy $ 64,000 Assuming that the partnership’s assets totaled $294,000 (all cash), make the general journal entry to record the liquidation of the partnership.

Answer 1