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 ofthe 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 â€“ useadditional 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 ownershipin exchange for a cash contribution of $10,000? What will Fennerâ€™s capital account balance be?
CASE B: Suppose Smith is admitted to the partnership and given a 20% share of ownership inexchange for a cash contribution of $10,000? What will Lynchâ€™s capital balance be?
CASE C: Suppose Fenner is admitted to the partnership with a 10% share of ownership inexchange for an $8,000 contribution? What will Pierceâ€™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 personallybankrupt. Assume there is a loss on conversion of non-cash assets to cash of $12,000. Whatwill be the amount of cash that Merrill will receive from the partnership in liquidation? Completea schedule of cash payments to arrive at your final answer.
CASE F: Fenner paid $8,000 to Merrill for one-half of Merrillâ€™s partnership interest. What isFennerâ€™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 includesinterest on capital balances, salaries, and the remainder in a fixed ratio. In each independentcase below, determine the allocation of income to each partner. Show your work (the best wayto complete each case is to use a net income schedule illustrated in your textbook). Do not tryto cram all of your work in the space below â€“ 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%