Value Added Accounting Practices In Strategic Business Decisions

Value Added Accounting Practices in Strategic Business DecisionsCase 7Fall 2016NamesSection: Points: Case 7. 1 – 20 points Case 7. 2 – 20 pointsCase 7. 3 – 20 points Total (60 points)Case 7. 1Adam, Bella, and Chris operate a partnership with a complex profit and loss sharing agreement. Theaverage capital balance for Adam, Bella and Chris on December 31, 2013 is $120,000, $270,000, and$340,000, respectively. A 6% interest allocation is provided to each partner based on the average capitalbalance on December 31, 2013. Adam and Bella receive salary allocations of $40,000 and $50,000,respectively. If partnership net income is above $160,000, after the salary allocations are considered (butbefore the interest allocations are considered), Chris will receive a bonus of 10% of the income (presalary and interest, but net of the bonus. Hint: Bonus = b% x (NI – Bonus). All residual income is allocatedin the ratios of 2: 2: 6 to Adam, Bella, and Chris, respectively. Required (show all your calculations): 1. Assuming that partnership net income for 2013 is $330,000. What is the TOTAL partnership RESIDUALINCOME allocation in 2013? (2 points)2. Assuming that partnership net income for 2013 is $330,000. What will the total partnership profitallocation be for Adam in 2013? (3 points)3. Assuming that partnership net income for 2013 is $330,000. What will the total partnership profitallocation be for Bella in 2013? (3 points)4. Assuming that partnership net income for 2013 is $330,000. What will the total partnership profitallocation be for Chris in 2013? (3 points)5. Assuming that partnership incurs a net loss of $26,200 in 2013. What is the TOTAL partnershipRESIDUAL INCOME allocation in 2013? (2 points)6. Assuming that partnership incurs a net loss of $26,200 in 2013. What will the total partnership profitallocation be for Adam in 2013? (3 points)7. Assuming that partnership incurs a net loss of $26,200 in 2013. What will the total partnership profitallocation be for Bella in 2013? (2 points)8. Assuming that partnership incurs a net loss of $26,200 in 2013. What will the total partnership profitallocation be for Chris in 2013? (2 points)Case 7. 2P, L, and O are partners with capital balances of $50,000, $30,000 and $20,000 and who share in the profitand loss of the PLO partnership 30%, 20%, and 50%, respectively, when they agree to admit C for a20% interest. Assuming C contributes directly to the partnership, answer the following questions: Required (show all your calculations): 1. If C is to contribute an amount equal to his book value share of the new partnership, how much shouldC contribute? (4 points)2. C contributes $38,000 to the partnership and the bonus method is used. What amount will be creditedfor C’s beginning capital balance? (4 points)3. If C contributes $40,000 to the partnership and the goodwill method is used, what amount will bedebited for goodwill? (4 points)4. C contributes $10,000 to the partnership and the goodwill method is used. What will be the result ofthe goodwill calculation? (4 points)5. C contributes $12,000 to the partnership and the bonus method is used. What amount will be creditedfor C’s beginning capital balance? (4 points)Case 7. 3Peter, Roberta, and Dana have the following capital balances, $80,000, $100,000 and $60,000, respectively. The partners share profits and losses 20%, 40%, and 40% respectively. Required (show all your calculations): 1. Roberta retires and is paid $160,000 based on an independent appraisal of the business. If thegoodwill method is used (assume all capital accounts are revalued), what is the capital balance ofPeter? (3. 5 points)2. Roberta retires and is paid $160,000 based on an independent appraisal of the business. If thegoodwill method is used (assume all capital accounts are revalued), what is the capital balance ofDana? (3 points)3. What is the total partnership capital after Roberta retires receiving $160,000 and using the goodwillmethod (assume all capital accounts are revalued)? (3. 5 points)4. Roberta retires and is paid $160,000 based on an independent appraisal of the business. If the bonusmethod is used, what is the capital balance of Peter? (3. 5 points)5. Roberta retires and is paid $160,000 based on an independent appraisal of the business. If the bonusmethod is used, what is the capital balance of Dana? (3 points)6. What is the total partnership capital after Roberta retires receiving $160,000 and using the bonusmethod? (3. 5 point)

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