Calculation of share of profits to partners.
1. Cytex Corporation has a foreign subsidiary located in a country experiencing high rates of inflation. Information concerning this country's inflation rate experience is given below.
|
Change
|
Annual
|
rate
|
|
|
|
|
Date
|
Index
|
In index
|
Of Inflation
|
|
|
|
January
|
1,20X1
|
100
|
|
|
|
|
January
|
1,20X2
|
130
|
30
|
30/100
|
30.00%
|
|
January
|
1,20X3
|
160
|
30
|
30/130
|
23.08%
|
|
January
|
1,20X4
|
220
|
60
|
60/160
|
37.50%
|
The inflation rate that is used in determining if the subsidiary is operating in a highly inflationary economy is:
a. 37.50%.
b. 90.58%.
c. 105.00%.
d. 120.00%.
Use the following information for questions 14,15 and 16.
Willis and Rite share profits and losses equally. Willis and Rite receive salary allowances of $20,000 and $30,000, respectively, and both partners receive 10% interest on their average capital balances. Average capital balances are calculated at the beginning of each month balance regardless of when additional capital contributions or permanent withdrawals are made subsequently within the month. Partners' drawings are not used in determining the average capital balances. Total net income for 2003 is $120,000.
|
|
Willis
|
Rite
|
|
January 1 capital balances
|
$100,000
|
$120,000
|
|
Yearly drawings ($1,500 a month)
|
18,000
|
18,000
|
|
Permanent withdrawals of capital:
|
|
|
|
June 3
|
12,000
|
|
|
May 2
|
|
15,000
|
|
Additional investments of capital:
|
|
|
|
July 3
|
40,000
|
|
|
October 2
|
|
50,000
|
2. What is the weighted-average capital for Willis and Rite in 2003?
a. $100,000 and $120,000
b. $105,333 and $126,667
c. $110,667 and $119,583
d. $126,667 and $105,333
3. If the average capital for Willis and Rite from question 1 is $112,000 and $119,000, respectively, what will be the total amount of profit allocated after the salary and interest distributions are completed?
a. $70,000
b. $73,100
c. $75,000
d. $80,000
4. If the average capital balances for Willis and Rite are $100,000 and $120,000, what will the final profit allocations for Willis and Rite in 2003?
a. $50,000 and $70,000
b. $54,000 and $66,000
c. $70,000 and $50,000
d. $75,000 and $45,000
A summary balance sheet for the Able, Baker, and Charlie partnership appears below. Able, Baker, and Charlie share profits and losses in a ratio of 2:3:5, respectively.
|
Assets
|
|
|
Cash
|
$100,000
|
|
Inventory
|
125,000
|
|
Marketable securities
|
200,000
|
|
Land
|
100,000
|
|
Building-net
|
500,000
|
|
Total assets
|
$1,025,000
|
Equities
|
Able, capital
|
$425,000
|
|
Baker, capital
|
400,000
|
|
Charlie, capital
|
200,000
|
|
Total equities
|
$1,025,000
|
The partners agree to admit Delta for a one-fifth interest. The fair market value of partnership land is appraised at $200,000 and the fair market value of inventory is $175,000. The assets are to be revalued prior to the admission of Delta and there is $30,000 of goodwill that attaches to the old partnership.
5. By how much will the capital accounts of Able, Baker, and Charlie increase, respectively, due to the revaluation of the assets and the recognition of goodwill?
a. The capital accounts will increase by $50,000 each.
b. The capital accounts will increase by $60,000 each.
c. $36,000, $54,000, and $90,000
d. $40,000, $50,000, and $60,000
6. How much cash will Delta have to invest to acquire a one-fifth interest?
a. $235,000
b. $241,000
c. $293,750
d. $301,250
7. What will the profit and loss sharing ratios be after Delta's investment?
a. 1:2:4:2
b. 2:3:5:2
c. 3:4:6:2
d. 4:6:10:5
8. The XYZ partnership provides a 5% bonus to Partner Y that is based upon partnership income, after deduction of the bonus. If the partnership's income is $126,000, how much is Partner Y's bonus allocation?
a. $6,000
b. $6,300
c. $6,615
d. $6,632