# Module 8 exam 4 Question 1 Dan and Ellie share

July 10, 2020
###### analyze a case study that presents an economic problem facing a company that operates within a particular market structure.
July 10, 2020

Module 8 exam 4
Question 1 Dan and Ellie share partnership profits and
losses at 70% and 30%, respectively. The partners agree to admit Fran into the
partnership for a 50% interest in capital and earnings. Capital accounts
immediately before the admission of Fran are:

Dan (70%)
\$ 800,000

Ellie (30%)
400,000

Total
\$ 1,200,000

Part 1: Prepare the
journal entry(s) for the admission of Fran to the partnership, assuming Fran
invested \$800,000 for the ownership interest and that this is a fair price for
that share of the partnership to be acquired. Fran paid the money directly to
Dan and to Ellie for 50% of each of their respective capital interests. The
partnership records goodwill.

Part 2: Prepare the
journal entry(s) for the admission of Fran to the partnership, assuming Fran
invested \$1,000,000 for the ownership interest. Fran paid the money to the
partnership for a 50% interest in capital and earnings. Assume the valuation is
based on the capital of the current partnership, which is fairly valued. The
partnership records goodwill.

Part 3: Prepare the
journal entry(s) for the admission of Fran to the partnership, assuming Fran
invested \$1,400,000 for the ownership interest and that this is a fair price
for that share of the partnership to be acquired. Fran paid the money to the
partnership for a 50% interest in capital and earnings. The partnership records
goodwill.

Question 2
Adam, Bella, and Chris operate a partnership with a complex
profit and loss sharing agreement. The average capital balance for Adam, Bella
and Chris on December 31, 2014 is \$120,000, \$270,000, and \$340,000,
respectively. A 6% interest allocation is provided to each partner based on the
average capital balance on December 31, 2014. Adam and Bella receive salary
allocations of \$40,000 and \$50,000, respectively. If partnership net income is
above \$160,000 after the salary allocations are considered (but before the
interest allocations are considered), Chris will receive a bonus of 10% of the
income (pre-salary and interest, but net of the bonus). All residual income is
allocated in the ratios of 2:2:6 to Adam, Bella, and Chris, respectively.

Part 1: Prepare a
schedule to allocate income to the partners, assuming that the partnership net
income for 2014 is \$330,000.

Part 2: Prepare a
journal entry to distribute the partnership’s income to the partners (assume
that an Income Summary account is used by the partnership).

Question 3
The balance sheet of the Addy, Bess, and Clara partnership
on January 1, 2014 (the date of partnership dissolution) was as follows:

Cash
\$ 4,000 Liabilities \$ 8,000
Other assets 26,000 Loan from Addy 1,000
Loan to Clara 2,000 Addy, capital (20%) 2,000

Bess, capital (40%)
9,000

Clara, capital (40%)
12,000
Total assets
\$ 32,000 Total liab./equity \$ 32,000

In January, other assets with a book value of \$16,000 were
sold for \$10,000 in cash.

Determine how the available cash on January 31, 2014 will be
distributed. (Use a safe payments schedule.)

Question 4
Alitech Corporation is liquidating under Chapter 7 of the
Bankruptcy Act. The accounts of Alitech at the time of filing are summarized as
follows:

Estimated

Realizable

Book Value Value
Cash
\$ 10,000 \$
10,000
Accounts receivable-net
60,000 50,000
Inventory
110,000 65,000
Land
20,000 35,000
Building
200,000 126,000
Goodwill
22,000

\$ 422,000

Accounts payable
\$ 120,000
Wages and salaries
30,000
Taxes payable
80,000
Accrued mortgage interest payable 22,000
Mortgage payable 100,000
Capital stock
90,000
Deficit
(20,000)

\$ 422,000

The land and building are pledged as security for the
mortgage payable as well as any accrued interest on the mortgage. Wages and
salaries were earned within 90 days of filing the petition for bankruptcy and
do not exceed \$10,000 per employee. Liquidation expenses are expected to be
\$30,000.

Part 1: Prepare a
schedule showing the priority rankings of the creditors and the expected
payouts.

Part 2: Billing
Corporation was a supplier to Alitech Corporation, and at the time of Alitech’s
bankruptcy filing, Billing’s account receivable from Alitech was \$40,000. On
the basis of the estimates, how much can Billing expect to receive?

Question 5 Kline Corporation incurred major losses in 2014
and entered into voluntary Chapter 7 bankruptcy in the early part of 2015. By
July 1, all assets were converted into cash, the secured creditors were paid,
and \$122,700 in cash was left to pay the remaining claims as follows:

Accounts payable
\$ 37,000
Claims incurred between the date of filing an
involuntary 5,000
petition and the date an interim trustee is appointed
Property taxes payable
8,000
Wages payable (all under \$10,000 per employee; 74,000
earned within 90 days of filing bankruptcy petition)
Unsecured note payable
19,000
Accrued interest on the note payable 2,000
12,180
Total
\$ 157,180

Classify the claims by their Chapter 7 priority ranking, and
analyze which amounts will be paid and which amounts will be written off.

Question 6
Hilfmir Corporation filed for Chapter 11 bankruptcy on
January 1, 2014. A summary of their financial status is shown below on June 30,
2014, at the date of the approved reorganization, along with the fair value of
their assets.

Per
Books Fair Value
Cash \$
134,000 \$ 134,000
A/R – net
20,000 20,000
Inventory 32,000 40,000
Plant Assets – net 114,000 106,000
Patent
80,000 0

\$ 380,000

A/P
\$ 60,000
Wages Payable 20,000
Prepetition liab. 250,000
Common Stock 140,000
Deficit
(90,000)

\$ 380,000
Under the reorganization plan, the reorganization value has
been set at \$320,000. Prepetition liabilities include \$30,000 of trade Accounts
Payable and a \$220,000 Note Payable to Bigg Bank. The reorganization plan calls
for the Prepetition accounts payable to be paid at 80% at a later date, and the
Note Payable for \$220,000 to be replaced by a Note Payable for \$76,000 and the
issuance of common stock of the new entity for \$100,000. The former
stockholders will receive \$40,000 in common stock of the new entity, Hilfmir,
in exchange for their shares.
Show the calculations to determine if Hilfmir is eligible
for fresh-start accounting, and prepare a fresh-start balance sheet for the new
entity, Hilfmir, as of July 1, 2014.

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