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Problem 1, at March 31, the partners’ capital balance in EMI company are Eaton $50,000, Mooney...

Problem 1, at March 31, the partners’ capital balance in EMI company are Eaton $50,000, Mooney $23,000, and Larry $22,000. The income sharing ratios are 5:4:1, respectively. April 1, the EMLS company is formed by admitting Stein to the firm as a partner Instructions: Journalize the admission of stein under each of the following independent assumptions. a) Stein purchases 50% of Mooney’s ownership interest by paying Mooney $18,000 in cash b) Stein invests $40,000 cash in the partnership for a 35% ownership interest that includes a bonus to the new partner, c) Stein invests $25,000 in the partnership for a 10% ownership interest and bonuses are given the old partners.

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Expert Solution

In the above EMI partnership three partners already there with a income sharing ration of 5:4:1

Eaton $ 50000, that is 50% share on income

Mooney $ 23000 that is 40% share on income

Larry $ 22000 that is 10% share on Income.

Now they are admitting new partner Stein.. there is three scenario..

A. Stein purchases 50% of Mooneys ownership interest by paying $18000. here, the 50% share of Mooney will be $11,500. The book value, since the Mooney share selling is the personal but for accounting purpose, we will record only the actural share value in the books EMLS company. That is $11500.

Journal Entry for this transaction for EMI is

Mooney's Capital Account $11,500 Dr

Stein Capital Account $11,500 CR.

B. Stein invests $40000 cash for 35% ownership interest but that includes a bonus to the new partner. Generally When there is negative goodwill the new investor get some bonus amount. When we add $40000 to the existing capital of Eton, Mooney and larry ($50000+$23000+$22000) = $95000

Total capital Amount is $135000 ($95000+40000) and 35% share of $135000 is $47250. here the actual cash paid by new partner stein is $40000, so the difference is $7250, this is considered as bonus to the new partner Stein.

The Jounal Entry is

Cash Account $40000 DR

Sten Bonus $7250 DR

Stein Capital Account $47250. (35% share of total capital)

C.Stein invests $25000 and 10% ownership interest. Bonus to old partners.

Here Existing total capital is $95000 (that is the total of Eaton Capital $50000+ Mooney Capital $23,000+Larry $ 22000) + new capital is 25000 = $120000. @10% is $12000. (that is the new partner alloted share is 10% of total Capital)

The difference amount is $13000 (25000-12000). This is the amount treated as bonus paid according the old partners income sharing is 5:4:1 (50%, 40% and 10% respectively) so the above $13000 is divided as $6500, for Partner Eaton, $5200 for Partner Mooney and $1300 for partner Larry respectively.

Cash Account $25000 Dr

Stein Capital Account $12000 CR

Eaton Account $6500 CR

Mooney Account $5200 CR

Larry Account $1300 CR

Pleas find the Jounal in Table for the Scenario of C: According to your request.

Journal Entry    Amount in $
Particulars DR    CR
Cash Account 25000
Stein Capital Account 12000
Eaton Account - Bonus 6500
Mooney Bonus 5200
Larry Amount 1300
Total 25000 25000

  

ekkarill92 answered 2 years ago
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