Question

A partnership of attorneys in the St. Louis, Missouri, area has the following balance sheet accounts as of January 1, 2018:

Assets	$	306,000	Liabilities	$	100,000
			Athos, capital		82,000
			Porthos, capital		72,000
			Aramis, capital		52,000

According to the articles of partnership, Athos is to receive an allocation of 50 percent of all partnership profits and losses while Porthos receives 30 percent and Aramis, 20 percent. The book value of each asset and liability should be considered an accurate representation of fair value.

For each of the following independent situations, prepare the journal entry or entries to be recorded by the partnership.

1. Porthos, with permission of the other partners, decides to sell half of his partnership interest to D’Artagnan for $40,000 in cash. No asset revaluation or goodwill is to be recorded by the partnership.

2. All three of the present partners agree to sell 10 percent of each partnership interest to D'Artagnan for a total cash payment of $25,000. Each partner receives a negotiated portion of this amount. Goodwill is recorded as a result of the transaction.

3. D'Artagnan is allowed to become a partner with a 10 percent ownership interest by contributing $32,000 in cash directly into the business. The bonus method is used to record this admission.

4. Use the same facts as in requirement (c) except that the entrance into the partnership is recorded by the goodwill method.

5. D'Artagnan is allowed to become a partner with a 15 percent ownership interest by contributing $12,000 in cash directly to the business. The goodwill method is used to record this transaction.

6. Aramis decides to retire and leave the partnership. An independent appraisal of the business and its assets indicates a current fair value of $266,000. Goodwill is to be recorded. Aramis will then be given the exact amount of cash that will close out his capital account.

Answer 1