PROBLEM 3

1. Sleepy, Grumpy and Happy are partners. Grumpy received of profits and losses with Happy and Sleepy each receiving 1/4. On 1/1/2014 they have the following capital balances

Grumpy $100,000

Happy $50,000

Sleepy $50,000

On 1/2/2014 Grumpy sells of his share of the partnership to Dopey for $80,000. Now all 4 partners will by owners.

REQUIRED:

Using the Goodwill method, show the capital accounts of the 4 partners on 1/2/2014.

Using the bonus method, show the capital accounts of the 4 partners on 1/2/2014

2. It is now 2017 and the capital accounts are as follows:
   1. Grumpy $80,000
   2. Happy $2,000
   3. Sleepy $50,000
   4. Dopey $90,000

The partners decide to a) pay interest of 10% on beginning capital balances, b) pay Dopey $12,000 for his extra work in the partnership and c) continue to share profits equally but losses are 10% Dopey and 30% each of the other partners.

In 2017 the partnership had the following:

Sales $400,000

Expenses $285,000 (ignoring any expenses to partners)

In 2018 the partnership had the following

Sales $500,000

Expenses $590,000

DOPEY took his salary from the partnership in both years but no other distributions to owners occurred in either 2017 or 2018.

REQUIRED:

DETERMINE THE INCOME DISTRIBUTION FOR 2017

DETERMINE THE CAPITAL ACCOUNTS ON 12/31/17

DETERMINE THE INCOME DISTRIBUTION FOR 2018

DETERMINE THE CAPITAL ACCOUNTS ON 12/31/18