Question

Problem 14-27 (Algo) (LO 14-3, 14-9, 14-10)

The following is the current balance sheet for a local partnership of doctors:

Cash and current assets	$	44,000	Liabilities	$	46,000
Land		154,000	A, capital		26,000
Building and equipment (net)		142,000	B, capital		46,000
			C, capital		96,000
			D, capital		126,000
Totals	$	340,000	Totals	$	340,000

The following questions represent independent situations:

1. E is going to invest enough money in this partnership to receive a 25 percent interest. No goodwill or bonus is to be recorded. How much should E invest?

2. E contributes $36,000 in cash to the business to receive a 10 percent interest in the partnership. Goodwill is to be recorded. Profits and losses have previously been split according to the following percentages: A, 30 percent; B, 10 percent; C, 40 percent; and D, 20 percent. After E makes this investment, what are the individual capital balances?

3. E contributes $50,000 in cash to the business to receive a 20 percent interest in the partnership. Goodwill is to be recorded. The four original partners share all profits and losses equally. After E makes this investment, what are the individual capital balances?

4. E contributes $44,000 in cash to the business to receive a 15 percent interest in the partnership. No goodwill or other asset revaluation is to be recorded. Profits and losses have previously been split according to the following percentages: A, 10 percent; B, 30 percent; C, 20 percent; and D, 40 percent. After E makes this investment, what are the individual capital balances?

5. C retires from the partnership and, as per the original partnership agreement, is to receive cash equal to 140 percent of her final capital balance. No goodwill or other asset revaluation is to be recognized. All partners share profits and losses equally. After the withdrawal, what are the individual capital balances of the remaining partners?

b. E contributes $36,000 in cash to the business to receive a 10 percent interest in the partnership. Goodwill is to be recorded. Profits and losses have previously been split according to the following percentages: A, 30 percent; B, 10 percent; C, 40 percent; and D, 20 percent. After E makes this investment, what are the individual capital balances?

c. E contributes $50,000 in cash to the business to receive a 20 percent interest in the partnership. Goodwill is to be recorded. The four original partners share all profits and losses equally. After E makes this investment, what are the individual capital balances?

d. E contributes $44,000 in cash to the business to receive a 15 percent interest in the partnership. No goodwill or other asset revaluation is to be recorded. Profits and losses have previously been split according to the following percentages: A, 10 percent; B, 30 percent; C, 20 percent; and D, 40 percent. After E makes this investment, what are the individual capital balances?

e. C retires from the partnership and, as per the original partnership agreement, is to receive cash equal to 140 percent of her final capital balance. No goodwill or other asset revaluation is to be recognized. All partners share profits and losses equally. After the withdrawal, what are the individual capital balances of the remaining partners?

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I NEED HELP WITH C AND E
	Individuals (b) Capital Balances (c) Capital Balances (d) Capital Balances (e) Capital Balances A $35,000 $46,125 $25,330 B $49,000 $43,990 C $108,000 $94,660 D $132,000 $123,320 E $36,000 $50,700

Answer 1

Explanation:

c. E contributes $50,000 in cash to the business to receive a 20 percent interest:

E's contribution = $50,000
E's interest in partnership = 20%

Total capital after including E's contribution = $26,000 + $46,000 + $96,000 + $126,000 + $50,000 = $344,000

20%of $344,000 = $68,800

E's contribution is less than 20% of the resulting capital.
E is apparently bringing some other attribute to the partnership (goodwill) that must be:  
E's Investment = 20% (Original Capital + E's Investment)

$50,000 + Goodwill = 20% [($26,000 + $46,000 + $96,000 + $126,000) + $50,000 + Goodwill]

$50,000 + Goodwill = 20% [$344,000 + Goodwill]

$50,000 + Goodwill = $68,800 + 0.20 Goodwill

0.80 Goodwill = $68,800 - $50,000

0.80 Goodwill = $18,800
Goodwill = $18,800/ 0.80 = $23,500

Hence, E's investment = $50,000 + $23,500 = $73,500

E invests $50,000 in cash and $23,500 in goodwill and in total of $73,500 which is 20% of the new capital ($26,000+$46,000+$96,000+$126,000+$73,500).
Capital balance of all other partners remain unchanged.

e. C retires from the partnership:

C's capital balance = $96,000
C's collection (140%) = $134,400

Bonus being paid to C = $38,400

This amount will be shared equally and deducted from the capital balances of remaining partners.

Bonus from:
A(1/3) = $12,800
B(1/3) = $12,800
D(1/3) = $12,800