In: Accounting
The Distance Plus partnership has the following capital balances at the beginning of the current year:
Tiger (50% of profits and losses) | $ | 85,000 |
Phil (30%) | 60,000 | |
Ernie (20%) | 55,000 | |
Each of the following questions should be viewed independently.
If Sergio invests $100,000 in cash in the business for a 25 percent interest, what journal entry is recorded? Assume that the bonus method is used.
If Sergio invests $60,000 in cash in the business for a 25 percent interest, what journal entry is recorded? Assume that the bonus method is used.
If Sergio invests $72,000 in cash in the business for a 25 percent interest, what journal entry is recorded? Assume that the goodwill method is used.
If Sergio invests $100,000 in cash in the business for a 25 percent interest:
Tiger | 50% | $ 85,000.00 |
Phil | 30% | $ 60,000.00 |
Ernie | 20% | $ 55,000.00 |
$ 200,000.00 | ||
Sergio Investment | $ 100,000.00 | |
Total Capital | $ 300,000.00 | |
25% (Sergio Capital) | $ 75,000.00 | |
Bonus to be shared to existing partners | $ 25,000.00 |
Journal Entry
Debit | Credit | |
Cash | $ 100,000.00 | |
Tiger Capital | $ 12,500.00 | |
Phil Capital | $ 7,500.00 | |
Ernie Capital | $ 5,000.00 | |
Sergio Capital | $ 75,000.00 |
If Sergio invests $60,000 in cash in the business for a 25 percent interest
Tiger | 50% | $ 85,000.00 |
Phil | 30% | $ 60,000.00 |
Ernie | 20% | $ 55,000.00 |
$ 200,000.00 | ||
Sergio Investment | $ 60,000.00 | |
Total Capital | $ 260,000.00 | |
Sergio Capital | $ 65,000.00 | |
Bonus to be taken from existing partners | $ 5,000.00 |
Journal Entry
Debit | Credit | |
Cash | $ 60,000.00 | |
Tiger Capital | $ 2,500.00 | |
Phil Capital | $ 1,500.00 | |
Ernie Capital | $ 1,000.00 | |
Sergio Capital | $ 65,000.00 |
If Sergio invests $72,000 in cash in the business for a 25 percent interest
Tiger | 50% | $ 85,000.00 |
Phil | 30% | $ 60,000.00 |
Ernie | 20% | $ 55,000.00 |
$ 200,000.00 | ||
Sergio Investment | $ 72,000.00 | |
Total Capital | $ 272,000.00 | |
Implied Value(72000/25%) | $ 288,000.00 | |
Goodwill | $ 16,000.00 |
Journal Entry
Debit | Credit | |
Goodwill | $ 16,000.00 | |
Tiger Capital | $ 8,000.00 | |
Phil Capital | $ 4,800.00 | |
Ernie Capital | $ 3,200.00 |
Debit | Credit | |
Cash | $ 72,000.00 | |
Sergio Capital | $ 72,000.00 |