Homework SourseThe Distance Plus partnership has the following capital bala
The Distance Plus partnership has the following capital balances at the beginning of the current year:
Each of the following questions should be viewed independently.
A. If Sergio invests $100,000 in cash in the business for a 30 percent interest, what journal entry is recorded? Assume that the bonus method is used. (If no entry is required for a transaction/event, select \"No journal entry required\" in the first account field.) Record the admission of new partner under bonus method.
B. If Sergio invests $75,000 in cash in the business for a 30 percent interest, what journal entry is recorded? Assume that the bonus method is used. (If no entry is required for a transaction/event, select \"No journal entry required\" in the first account field.) Record the admission of new partner under bonus method.
C. If Sergio invests $90,000 in cash in the business for a 30 percent interest, what journal entry is recorded? Assume that the goodwill method is used. (If no entry is required for a transaction/event, select \"No journal entry required\" in the first account field.) Record the entry for goodwill allocation, during the admission of a new partner.
| Tiger (40% of profits and losses) | $ | 80,000 | ||||||||||||||||||||||||||||||||||||||||||||||
| Phil (40%) | 50,000 | |||||||||||||||||||||||||||||||||||||||||||||||
| Ernie (20%) | 65,000 | |||||||||||||||||||||||||||||||||||||||||||||||
| Each of the following questions should be viewed independently. A. If Sergio invests $100,000 in cash in the business for a 30 percent interest, what journal entry is recorded? Assume that the bonus method is used. (If no entry is required for a transaction/event, select \"No journal entry required\" in the first account field.) Record the admission of new partner under bonus method.
B. If Sergio invests $75,000 in cash in the business for a 30 percent interest, what journal entry is recorded? Assume that the bonus method is used. (If no entry is required for a transaction/event, select \"No journal entry required\" in the first account field.) Record the admission of new partner under bonus method.
C. If Sergio invests $90,000 in cash in the business for a 30 percent interest, what journal entry is recorded? Assume that the goodwill method is used. (If no entry is required for a transaction/event, select \"No journal entry required\" in the first account field.) Record the entry for goodwill allocation, during the admission of a new partner.
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Solution
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| a. | |||||
| Tiger | 80000 | ||||
| Phil | 50000 | ||||
| Ernie | 65000 | ||||
| Sergio | 100000 | ||||
| Total Capital | 295000 | ||||
| Sergio\'s Capital Portion (30%) | 300000*30% | 90000 | |||
| Sergio Paid Cash | 100000 | ||||
| Bonus | 100000-90000 | 10000 | |||
| Will be giving to exising partners in Profit sharing ratio 4:4:2 | |||||
| Cash Debit | 100000 | ||||
| Sergio, Capital Credit | 90000 | ||||
| Tiger, Capital Credit | 4000 | 10000*4/10 | |||
| Phil, Capital Credit | 4000 | 10000*4/10 | |||
| Ernie, Capital Credit | 2000 | 10000*2/10 | |||
| b. | Tiger | 80000 | |||
| Phil | 50000 | ||||
| Ernie | 65000 | ||||
| Sergio | 75000 | ||||
| Total Capital | 270000 | ||||
| Sergio\'s Capital Portion (30%) | 270000*30% | 81000 | |||
| Sergio Paid Cash | 75000 | ||||
| Bonus to be take from old partner | 81000-75000 | -6000 | |||
| Will be giving to exising partners in Profit sharing ratio 4:4:2 | |||||
| Cash Debit | 75000 | ||||
| Tiger, Capital Debit | 2400 | 6000*4/10 | |||
| Phil, Capital Debit | 2400 | 6000*4/10 | |||
| Ernie, Capital Debit | 1200 | 6000*2/10 | |||
| Sergio, Capital Credit | 81000 | ||||
| c. | Tiger | 80000 | |||
| Phil | 50000 | ||||
| Ernie | 65000 | ||||
| Sergio | 90000 | ||||
| Total Capital | 285000 | ||||
| Implied Value of partnership (90000/30%) | 300000 | ||||
| Hence Goodwill 300000-285000 | 15000 | ||||
| goodwill of $15,000 must be recognized with the offsetting allocation | |||||
| to the original partners based on their profit and loss ratio: | |||||
| Tiger—$6,000 (40%), Phil— $6,000 (40%), and Ernie—$3,000 (20%) | |||||
| Goodwill Account Debit | 15000 | ||||
| Tiger, Capital Credit | 6000 | ||||
| Phil, Capital Credit | 6000 | ||||
| Ernie, Capital Credit | 3000 | ||||
| Cash Debit | 72000 | ||||
| Sergio, Capital Credit | 72000 |
