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Chapter 15 – Exercises & Cases

Multiple Choice Questions​

  1. A partnership is owned by: a) One person b) Two or more people c) Shareholders d) Creditors Answer: b) Partnership has two or more owners.

  2. Partner capital accounts track: a) Only contributions b) Contributions, profits, withdrawals c) Only profits d) Only withdrawals Answer: b) Capital accounts track all partner transactions.

  3. SCS is a: a) Corporation b) Limited partnership c) Sole proprietorship d) General partnership Answer: b) SCS is a limited partnership.

Questions​

  1. How is a partnership formed? What journal entries are needed?

  2. How are profits allocated in a partnership? Give examples.

  3. What happens when a new partner is admitted?

  4. What are the differences between SNC and SCS?

  5. What are the accounting requirements for partnerships in Luxembourg?

Problems Set A​

Problem A-1: Partnership Formation

Record formation of partnership: a) Partner A contributes €40,000 cash b) Partner B contributes €30,000 cash + equipment worth €20,000 c) Record with proper PCN accounts

Problem A-2: Profit Allocation - Equal Shares

Allocate €60,000 net income equally between two partners. Record journal entry.

Problem A-3: Profit Allocation - Capital Ratio

Allocate €50,000 net income based on capital:

  • Partner A: €60,000 capital (60%)
  • Partner B: €40,000 capital (40%)

Problem A-4: Profit Allocation - Salary Allowances

Allocate €80,000 net income:

  • Partner A salary allowance: €25,000
  • Partner B salary allowance: €20,000
  • Remainder split equally

Problem A-5: Partner Withdrawal

Partner A withdraws with capital balance of €50,000. Record withdrawal at book value.

Problems Set B​

Problem B-1: Complete Partnership Cycle

Partnership formed:

  • Partner A: €60,000 cash
  • Partner B: €40,000 cash

Year 1:

  • Net Income: €100,000 (allocated 60/40)
  • Partner A withdrawal: €15,000
  • Partner B withdrawal: €10,000

Record all transactions and show ending capital balances.

Problem B-2: Admission of New Partner - Investment

Partnership worth €100,000 (Partner A: €60,000, Partner B: €40,000). Partner C invests €60,000 for 1/3 interest. Calculate and record with bonus to existing partners.

Problem B-3: Admission of New Partner - Purchase

Partner A sells 50% of interest (€30,000) to Partner C for €35,000. Record admission (Partner C pays Partner A directly).

Problem B-4: Partner Withdrawal with Bonus

Partner A withdraws:

  • Capital balance: €70,000
  • Receives €80,000 (bonus of €10,000)
  • Remaining partners: Partner B (60%), Partner C (40%)

Record withdrawal with bonus allocation.

Problem B-5: Complex Profit Allocation

Allocate €120,000 net income:

  • Partner A: Salary €30,000, Interest on capital (€50,000 × 5%), 50% of remainder
  • Partner B: Salary €25,000, Interest on capital (€30,000 × 5%), 50% of remainder

Comprehensive Problem​

Comprehensive Problem 15: Complete Partnership Accounting

Le Petit Bistro Partnership is formed by Marie and her friend Jean.

Formation (January 1, 2024):

  • Marie contributes €80,000 cash
  • Jean contributes €50,000 cash + equipment worth €30,000
  • Partnership agreement: 60/40 profit sharing (Marie/Jean)

Year 2024 Operations:

  • Net Income: €120,000
  • Marie withdrawal: €20,000
  • Jean withdrawal: €15,000

Year 2025:

  • Net Income: €150,000
  • Marie withdrawal: €25,000
  • Jean withdrawal: €20,000
  • New Partner Luc admitted: Invests €70,000 for 1/3 interest
    • Partnership worth €200,000 before admission
    • Bonus to existing partners

Year 2026:

  • Net Income: €180,000 (now split 1/3 each)
  • Jean withdraws: Capital balance €85,000, receives €90,000
    • Bonus split between Marie and Luc (50/50)

Required:

  1. Record partnership formation with proper PCN accounts.

  2. Record all profit allocations for 2024, 2025, and 2026.

  3. Record all partner withdrawals.

  4. Record admission of Partner Luc (calculate bonus properly).

  5. Record withdrawal of Partner Jean (calculate bonus properly).

  6. Prepare capital account statements for all partners: a) December 31, 2024 b) December 31, 2025 c) December 31, 2026

  7. Show equity section of balance sheet: a) December 31, 2024 b) December 31, 2025 c) December 31, 2026

  8. Explain Luxembourg requirements: a) SNC vs. SCS forms b) Partnership agreement requirements c) PCN Class 1 account classifications d) RCS filing requirements

Cases​

Case 15-1: Partnership Formation Decision

Marie and Jean are considering forming a partnership for their restaurant. They need to decide:

  • Capital contributions
  • Profit sharing ratio
  • Management responsibilities
  • Withdrawal procedures

Questions for Analysis:

  1. How should they determine capital contributions?

  2. What profit sharing method would be fair? Why?

  3. What should be included in the partnership agreement?

  4. What are the advantages and disadvantages of partnership vs. corporation?

  5. What are the Luxembourg requirements (SNC vs. SCS)?

  6. How should they handle potential disputes?

Case 15-2: Admitting a New Partner

A successful partnership wants to admit a new partner who will bring expertise and capital. The existing partners are concerned about:

  • Dilution of ownership
  • Fair valuation
  • Bonus calculations

Questions for Analysis:

  1. How should the new partner's interest be valued?

  2. Should there be a bonus? To whom?

  3. How will this affect existing partners?

  4. What are the tax implications?

  5. How should the partnership agreement be updated?

  6. What are the Luxembourg legal requirements?

Solutions are published in supplementary/instructor/solutions/chapter_15_solutions.md.