### Calculation of share of profits to partners

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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

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