1. Hasselback, Krooch & Kinney, a partnership, is considering admitting Ken Rosenzweig as a new partner. On July 31 of the current year, the capital accounts of the three existing partners and their shares of profits and losses are as follows:

Requirements Journalize the admission of Rosenzweig as a partner on July 31 for each of the following independent situations: R1. Rosenzweig pays Kinney $110,000 cash to purchase Kinneys interest. R2. Rosenzweig invests $60,000 in the partnership, acquiring a 1/4 interest in the business. R3. Rosenzweig invests $60,000 in the partnership, acquiring a 1/6 interest in the business.

2. Evans, Furr, and Good formed the EF&G partnership. Evans invested $20,000; Furr, $40,000; and Good, $60,000. Evans will manage the store; Furr will work in the store three-quarters of the time; and Good will not work.

Requirements R1. Compute the partners shares of profits and losses under each of the following plans: a. Net loss is $40,000, and the partnership agreement allocates 45% of profits to Evans, 35% to Furr, and 20% to Good. The agreement does not discuss the sharing of losses. b. Net income for the year ended September 30, 2009, is $90,000. The first $30,000 is allocated on the basis of partner capital balances. The next $30,000 is based on service, with $20,000 going to Evans and $10,000 going to Furr. Any remainder is shared equally. R2. Revenues for the year ended September 30, 2009, were $190,000, and expenses were $100,000. Under plan (b) above, prepare the partnership income statement for the year.

Decision Case

Jana Bell invested $20,000 and Matt Fischer $10,000 in a public relations firm that has operated for 10 years. Bell and Fischer have shared profits and losses in the 2:1 ratio of their investments in the business. Bell manages the office, supervises employees, and does the accounting. Fischer, the moderator of a television talk show, is responsible for marketing. His high profile generates important revenue for the business. During the year ended December 2006, the partnership earned net income of $220,000, shared in the 2:1 ratio. On December 31, 2006, Bells capital balance was $150,000, and Fischers capital balance was $100,000. (Bell drew more cash out sf the business than Fischer.)

Requirements Respond to each of the following situations. R1. During January 2007, Bell learned that revenues of $60,000 were omitted from the reported 2006 income. She brings this omission to Fischers attention, pointing out that Bells share of this added income is two-thirds, or $40,000, and Fischers share is one-third, or $20,000. Fischer believes they should share this added income on the basis of their capital balances60%, or $36,000, to Bell and 40%, or $24,000, to himself. Which partner is correct? Why? R2. Assume that the 2006 omission of $60,000 was an account payable for an operating expense. On what basis would the partners share this amount?