Question

In: Accounting

PHILIP, CALVIN, AND AARON ARE PARTNERS WHO SHARE PROFITS AND LOSSES 50%, 30%, AND 20%, RESPECTIVELY....

PHILIP, CALVIN, AND AARON ARE PARTNERS WHO SHARE PROFITS AND LOSSES 50%, 30%, AND 20%, RESPECTIVELY. THEIR CAPITAL BALANCES ARE $150 000, $90 000, AND $60 000 RESPECTIVELY.

INSTRUCTIONS:

ASSUME JAMES JOINS THE PARTNERSHIP BY INVESTING $120 000 FOR A 25% INTEREST. WHAT ARE THE CAPITAL BALANCES OF ALL PARTNERS AFTER THE ADMISSION OF JAMES? SHOW ALL SUPPORTING CALCULATIONS.

ASSUME INSTEAD THAT AARON LEAVES THE PARTNERSHIP. AARON IS PAID $180 000. WHAT ARE THE CAPITAL BALANCES OF ALL PARTNERS AFTER THE WITHDRAW OF AARON?

Solutions

Expert Solution

Part#1

Total Partnership capital After admission of James = $150000+$90000+$60000+$120000

=$420000

James Capital = $420000*25% =$105000

Goodwill(Bonus) = James Contribution-James Capital

=$120000-$105000

=$15000

Bonus will be distribututed among old partners in their old Profit sharing ratio therefore.

Philip Share in Bonus = $15000*50%=$7500

Calvin Share in bonus =$15000*30%=$4500

Aaron share in bonus =$15000*20%=$3000

THE CAPITAL BALANCES OF ALL PARTNERS AFTER THE ADMISSION OF JAMES:

New Capital = Old Capital + share in Bonus

•Philip Capital=$150000+$7500 =$157500

• Calvin capital =$90000+$4500=$94500

•Aaron Capital =$60000+$3000=$63000

Part#2:-

Extra payment to Aaron = Paymemt Amount - Aaron Capital Balance

=$180000-$60000 =$120000.

$120000 will be deducted from remaining partners capital account in their New Profit sharing ratio(50:30) therefore,

Reduction in Philip capital = $120000*50/80=$75000

Reduction in Calvin capita =$120000*30/80=$45000.

THE CAPITAL BALANCES OF ALL PARTNERS AFTER THE WITHDRAW OF AARON.

• New Capital of Philip =$150000-75000 =$75000

• New Capital of Calvin=$90000-$45000=$45000

ekkarill92 answered 1 year ago

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