Financial Accounting Questions and Answers

Commerical Cleaning Services, LLC, provides cleaning services for office buildings. The firm has 10 members in the LLC, which did not change between 2012 and 2013. During 2013, the business terminated two commercial contracts. The following revenue and employee information is provided: 2013 2012 Revenues (in thousands) $20,000 $22,400 Number of employees (excluding members) 160 200  a. For 2013 and 2012, determine the revenue per employee (excluding members). b. Interpret the trend between the two years. Answer: a.    Revenue per employee, 2013:  160 000,000,20$  = $125,000   Revenue per employee, 2012:  200 000,400,22$  = $112,000  b. Revenues decreased between the two years; however, the number of employees has decreased at a faster rate. Thus, the revenue per employee increased from $112,000 in 2012 to $125,000 in 2013. This indicates that the efficiency of the firm has increased in the two years, even though revenues declined. This i...

The accounting firm of Deloitte & Touche is the largest international accounting firm in the world as ranked by total revenues. For the last two years, Deloitte & Touche reported the following for its U.S. operations: 2009 2008 Revenue (in billions) $26.1 $27.4 Number of professional staff  (including partners) 139,760 133,100  a. For 2009 and 2008, determine the revenue per professional staff. Round to the nearest thousand dollars. b. Interpret the trend between the two years. Answer: a.    Revenue per professional staff, 2009:  760,139 000,000,100,26$  = $187,000 rounded    Revenue per professional staff, 2008:  100,133 000,000,400,27$  = $206,000 rounded   b. The revenues declined between the two years from $27.4 billion to $26.1 billion, or 4.7% [($26.1 – $27.4)/$27.4]. Revenues have declined, mostly due to the worldwide recession during this period. The number of employees has grown, from 133,100 to 139,760, or 5% [(139...

The capital accounts of Gary Menendez and Melissa Breeden have balances of $75,000 and $55,000, respectively, on January 1, 2012, the beginning of the current fiscal year. On April 10, Menendez invested an additional $12,000. During the year, Menendez and Breeden withdrew $44,000 and $35,000, respectively, and net income for the year was $92,000. The articles of partnership make no reference to the division of net income. a. Journalize the entries to close (1) the income summary account and (2) the drawing accounts. b. Prepare a statement of partners’ equity for the current year for the partnership of Menendez and Breeden. Answer: a. (1) Income Summary.................................................... 92,000    Gary Menendez, Capital....................................  46,000    Melissa Breeden, Capital..................................  46,000    (2) Gary Menendez, Capital ......................................... 44,000   Melissa Breeden...

Hall, Lang, and Das are members of Evergreen Sales, LLC, sharing income and losses in the ratio of 2:2:1, respectively. The members decide to liquidate the limited liability company. The members’ equity prior to liquidation and asset realization on May 1, 2012, are as follows: Hall             $37,000 Lang              40,000 Das               18,000 Total            $95,000 In winding up operations during the month of May, noncash assets with a book value of $107,000 are sold for $123,000, and liabilities of $25,000 are satisfied. Prior to realization, Evergreen Sales has a cash balance of $13,000. a. Prepare a statement of LLC liquidation. b. Provide the journal entry for the final cash distribution to members. c. What is the role of the income- and loss-sharing ratio in liquidating a LLC? Answer: EVERGREEN SALES, LLC Statement of LLC Liquidation For the Pe...

After closing the accounts on July 1, prior to liquidating the partnership, the capital account balances of Jessup, King, and Oliver are $70,000, $43,000, and $22,000, respectively. Cash, noncash assets, and liabilities total $62,000, $108,000, and $35,000, respectively. Between July 1 and July 29, the noncash assets are sold for $90,000, the liabilities are paid, and the remaining cash is distributed to the partners. The partners share net income and loss in the ratio of 3:2:1. Prepare a statement of partnership liquidation for the period July 1–29, 2012. Answer: JESSUP, KING, AND OLIVER Statement of Partnership Liquidation For the Period Ending July 1–29, 2012   Capital   Noncash Jessup King  Oliver Cash + Assets = Liabilities + (3/6) + (2/6) + (1/6)   Balances before realization............. $ 62,000 $108,000 $ 35,000 $ 70,000 $ 43,000 $ 22,000 Sale of assets and division  of loss............................................ + 90,000 –108,000   — – 9,000 ...

Arnold, Peters, and Suzuki are partners sharing income 3:2:1. After the firm’s loss from liquidation is distributed, the capital account balances were: Arnold, $18,000 Dr.; Peters, $75,000 Cr.; and Suzuki, $55,000 Cr. If Arnold is personally bankrupt and unable to pay any of the $18,000, what will be the amount of cash received by Peters and Suzuki upon liquidation? Answer:   Arnold   Peters   Suzuki   Capital balances after realization.............. $(18,000) $ 75,000 $55,000 Distribution of partner deficiency.............  18,000  (12,000)1  (6,000)2 Capital balances after deficiency  distribution........................................... $ 0 $ 63,000 $49,000  1$18,000 × 2/3 2$18,000 × 1/3  

Deacon, Raines, and Francis arranged to import and sell orchid corsages for a university dance. They agreed to share equally the net income or net loss of the venture. Deacon and Raines advanced $300 and $450 of their own respective funds to pay for advertising and other expenses. After collecting for all sales and paying creditors, the partnership has $1,800 in cash. a. How should the money be distributed? b. Assuming that the partnership has only $600 instead of $1,800, do any of the three partners have a capital deficiency? If so, how much? Answer: a. Cash should be distributed as indicated in the following tabulation:    Deacon Raines Francis  Total  Capital invested................................ $ 300 $ 450 $ — $ 750 Net income........................................ +  350 + 350 + 350 +1,050* Capital balances and cash distribution.................................... $ 650 $ 800 $ 350 $1,800   *$1,800 – $300 – $450   b. Francis has a capital def...

Daniel Mason and Srini Kumar, with capital balances of $34,000 and $36,000, respectively, decide to liquidate their partnership. After selling the noncash assets and paying the liabilities, there is $82,000 of cash remaining. If the partners share income and losses equally, how should the cash be distributed? Answer: Mason Kumar  Total   Capital balances before realization .............. $34,000 $36,000 $70,000 Division of gain on sale of noncash assets  [($82,000 – $70,000)/2]..............................  6,000  6,000 Capital balances after realization.................. $40,000 $42,000 Cash distributed to partners.........................  40,000  42,000 Final balances ................................................ $ 0 $ 0 

Gifford, Lawrence, and Ma share equally in net income and net losses. After the partnership sells all assets for cash, divides the losses on realization, and pays the liabilities, the balances in the capital accounts are as follows: Gifford, $32,000 Cr.; Lawrence, $62,500 Cr.; Ma, $15,000 Dr. a. What term is applied to the debit balance in Ma’s capital account? b. What is the amount of cash on hand? c. Journalize the transaction that must take place for Gifford and Lawrence to receive cash in the liquidation process equal to their capital account balances. Answer: a. Deficiency   b. $79,500 ($32,000 + $62,500 – $15,000)   c. Cash...............................................................................  15,000 Ma, Capital................................................................    15,000   Support for entry:   Gifford  Lawrence  Ma    Capital balances after realization....... $32,000 $62,500 $(15,000) Dr.  Receipt o...

Lyle and Fisher are partners, sharing gains and losses equally. They decide to terminate their partnership. Prior to realization, their capital balances are $15,000 and $7,000, respectively. After all noncash assets are sold and all liabilities are paid, there is a cash balance of $16,000. a. What is the amount of a gain or loss on realization? b. How should the gain or loss be divided between Lyle and Fisher? c. How should the cash be divided between Lyle and Fisher? Answer: a.    Cash balance ................................................. $16,000  Sum of capital accounts...............................  22,000  Loss from sale of noncash assets............... $ 6,000    b. and c.  Lyle  Fisher   Capital balances before realization.............. $15,000 $7,000  Division of loss on sale of noncash assets   3,000*  3,000*  Balances......................................................... $12,000 $4,000  Cash dist...

The statement of members’ equity for Bonanza, LLC, is shown below. Bonanza, LLC Statement of Members’ Equity For the Years Ended December 31, 2012 and 2013 Idaho Properties, LLC, Member Equity Silver Holdings, LLC, Member Equity Justin Thomas Member Equity Total Members’ Equity Members’ equity, December 31, 2011 $552,000 $420,500 $    972,500 Net income   128,000   192,000      320,000 Members’ equity, December 31, 2012 $680,000 $612,500 $1,292,500 Thomas contribution, January 1, 2013 8,000 12,000 $250,000 270,000 Net income 90,000 225,000 135,000 450,000 Less member withdrawals (32,000) (48,000) (50,000) (130,000) Members’ equity, December 31, 2013 $746,000 $801,500 $335,000 $1,882,500 a. What was the income-sharing ratio in 2012? b. What was the income-sharing ratio in 2013? c. How much cash did Justin Thomas contribute to Bonanza, LLC, for his interest? d. Why do the member equity accounts of Idaho Properties, LLC, and Silver Holdings, LLC, have pos...

David Winner is to retire from the partnership of Winner and Associates as of March 31, the end of the current fiscal year. After closing the accounts, the capital balances of the partners are as follows: David Winner, $210,000; Alexis Richards, $125,000; and Marcus Williams, $140,000. They have shared net income and net losses in the ratio of 3:2:2. The partners agree that the merchandise inventory should be increased by $32,000, and the allowance for doubtful accounts should be increased by $4,000. Winner agrees to accept a note for $150,000 in partial settlement of his ownership equity. The remainder of his claim is to be paid in cash. Richards and Williams are to share equally in the net income or net loss of the new partnership. Journalize the entries to record (a) the adjustment of the assets to bring them into agreement with current market prices and (b) the withdrawal of Winner from the partnership. Answer: a. Merchandise Inventory..................................................

The partnership of Angel Investor Associates began operations on January 1, 2012, with contributions from two partners as follows: Scott Wilson                  $120,000 Michael Goforth                 80,000 The following additional partner transactions took place during the year: 1. In early January, Lance McGinnis is admitted to the partnership by contributing $50,000 cash for a 20% interest. 2. Net income of $250,000 was earned in 2012. In addition, Scott Wilson received a salary allowance of $45,000 for the year. The three partners agree to an income-sharing ratio equal to their capital balances after admitting McGinnis. 3. The partners’ withdrawals are equal to half of the increase in their capital balances from salary allowance and income. Prepare a statement of partnership equity for the year ended December 31, 2012. Answer: A NGEL INVESTOR ASSOCIATES Statement of Partnership Equity For the Year...

J. Witt and K. Torres are partners in Whole Earth Consultants. Witt and Torres share income equally. L. Jenkins will be admitted to the partnership. Prior to the admission, equipment was revalued downward by $12,000. The capital balances of each partner are $106,000 and $141,000, respectively, prior to the revaluation. a. Provide the journal entry for the asset revaluation. b. Provide the journal entry for Jenkins’ admission under the following independent situations: 1. Jenkins purchased a 20% interest for $45,000. 2. Jenkins purchased a 30% interest for $135,000. Answer: a. J. Witt, Capital........................................................... 6,000  K. Torres, Capital...................................................... 6,000   Equipment............................................................  12,000   b. (1) Cash.................................................................... 45,000   J. Witt, Capital...............................................

HealthSource, LLC, consists of two doctors, Drew and Moore, who share in all income and losses according to a 2:3 income-sharing ratio. Dr. Mann has been asked to join the LLC. Prior to admitting Mann, the assets of HealthSource were revalued to reflect their current market values. The revaluation resulted in medical equipment being increased by $35,000. Prior to the revaluation, the equity balances for Drew and Moore were $201,000 and $289,000, respectively. a. Provide the journal entry for the asset revaluation. b. Provide the journal entry for the bonus under the following independent situations: 1. Mann purchased a 30% interest in HealthSource, LLC, for $285,000. 2. Mann purchased a 25% interest in HealthSource, LLC, for $155,000. Answer: a. Medical Equipment........................................................ 35,000   Drew, Member Equity...............................................  14,0001   Moore, Member Equity............................................. ...

Andrew Hall and Brian Li formed a partnership to provide landscaping services. Hall and Li shared profits and losses equally. After all the tangible assets have been adjusted to current market prices, the capital accounts of Andrew Hall and Brian Li have balances of $54,000 and $71,000, respectively. Kristin Lane has expertise with using the computer to prepare landscape designs, cost estimates, and renderings. Hall and Li deem these skills useful; thus, Lane is admitted to the partnership at a 30% interest for a purchase price of $35,000. a. Determine the recipient and amount of the partner bonus. b. Provide the journal entry to admit Lane into the partnership. c. Why would a bonus be paid in this situation? Answer: a. Bonus received by Lane:  Andrew Hall, Capital...................................................... $ 54,000  Brian Li, Capital.............................................................  71,000  Lane’s contribution.....................................

After the tangible assets have been adjusted to current market prices, the capital accounts of Brandon Newman and Latrell Osbourne have balances of $75,000 and $125,000, respectively. Juan Rivas is to be admitted to the partnership, contributing $50,000 cash to the partnership, for which he is to receive an ownership equity of $65,000. All partners share equally in income. a. Journalize the entry to record the admission of Rivas, who is to receive a bonus of $15,000. b. What are the capital balances of each partner after the admission of the new partner? c. Why are tangible assets adjusted to current market prices, prior to admitting a new partner? Answer: a. Cash................................................................................  50,000 Brandon Newman, Capital............................................  7,500 Latrell Osbourne, Capital..............................................  7,500 Juan Rivas, Capital.................................................. ...

The capital accounts of Jonathan Faber and Faheem Ahmad have balances of $150,000 and $110,000, respectively. Lauren Wells and Rachel Lee are to be admitted to the partnership. Wells buys one-fifth of Faber’s interest for $35,000 and one-fourth of Ahmad’s interest for $25,000. Lee contributes $70,000 cash to the partnership, for which she is to receive an ownership equity of $70,000. a. Journalize the entries to record the admission of (1) Wells and (2) Lee. b. What are the capital balances of each partner after the admission of the new partners? Answer: a. (1) Jonathan Faber, Capital (20% × $150,000)............  30,000 Faheem Ahmad, Capital (25% × $110,000)............  27,500 Lauren Wells, Capital........................................    57,500  (2) Cash.........................................................................  70,000 Rachel Lee, Capital............................................    70,000   b. Jonathan Faber ($150,000 –...

Lily Yuan and Kayla Dunn are partners who share in the income equally and have capital balances of $180,000 and $62,500, respectively. Yuan, with the consent of Dunn, sells one-third of her interest to Rachel Burnett. What entry is required by the partnership if the sales price is (a) $40,000? (b) $80,000? Answer: a. and b. Lily Yuan, Capital.......................................  60,000 Rachel Burnett, Capital............................................    60,000 $180,000 × 1/3.

The notes to the annual report for KPMG LLP (U.K.) indicated the following policies regarding the partners’ capital: The allocation of profi ts to those who were partners during the fi nancial year occurs following the fi nalization of the annual fi nancial statements. During the year, partners receive monthly drawings and, from time to time, additional profi t distributions. Both the monthly drawings and profi t distributions represent payments on account of current-year profi ts and are reclaimable from partners until profi ts have been allocated. Assume that the partners draw £40 million per month for 2012 and the net income for the year is £600 million. Journalize the partner capital and partner drawing control accounts in the following requirements: a. Provide the journal entry for the monthly partner drawing for January. b. Provide the journal entry to close the income summary account at the end of the year. c. Provide the journal entry to close the drawing account at the end of the year...