Question

In: Accounting

2. The capital balances of the DEF Partnership are as follows: Danielson $180,000 Eklund 95,000 Forsberg...

2. The capital balances of the DEF Partnership are as follows:

Danielson $180,000

Eklund 95,000

Forsberg 150,000

Total $425,000

The partners' income sharing ratio is: Danielson, 25%; Eklund, 45%; Forsberg, 30%. Assume the partnership’s identifiable net assets are carried at amounts approximating fair value.

Case A:

Assume Gustafson joins the partnership by contributing $125,000 to the partnership for

a 20% interest in partnership capital.

Case B:

Now assume Gustafson paid $90,000 for a 20% interest in partnership capital.

Instruction: For each case (each case is independent), please use both Bonus method and Goodwill method to

analyze the problem. Prepare the Statement of Partners’ Capital Balances, as well as the related journals prepared

for the partnership.

Solutions

Expert Solution

Bonus Method
Case A
Total capital of DEF 425000
(180000+95000+150000)
Investment of Gustafson 125000
Interest of Gustafson 20%
Total capital of new partnership 550000
(425000+125000)
Value of Gustafson's Capital 110000
(550000*20/100)
Calculation of Bonus
Gustafson's investment - Gustafson's capital value 15000
(125000-110000)
In this case as bonus is positive it should be devided among the old partners
in their profit sharing ratio.
Danielson = 15000*25/100 3750
Eklund = 15000*45/100 6750
Forsberg     = 15000*30/100 4500
Journal
Description Debit Credit
Cash A/c   Dr 125000
    To Gustafson's Capital 110000
    To Danielson's Capital 3750
    To Eklund 's Capital 6750
    To Forsberg 's Capital 4500
Statement of partners new capital
Danielson - 180000+3750        >> 183750
Eklund - 95000+6750          >> 101750
Forsberg - 150000+4500        >> 154500
Gustafson - 110000
Bonus Method
Case B
Total capital of DEF 425000
(180000+95000+150000)
Investment of Gustafson 90000
Interest of Gustafson 20%
Total capital of new partnership 515000
(425000+90000)
Value of Gustafson 's Capital 103000
(515000*20/100)
Calculation of Bonus
Gustafson's investment - Gustafson's capital value -13000
(90000-103000)
In this case as bonus is negative it should be adjusted to Gustafson's investment.
So Gustafson's new capital would be = 90000-13000
= 77000   
Journal
Description Debit Credit
Cash A/c    Dr 90000
    To Gustafson's Capital 77000
    To Gustafson's Bonus 13000
Statement of partners new capital
Danielson - 180000
Eklund - 95000
Forsberg - 150000
Gustafson - 77000
Goodwill method
Case A
Total capital of DEF 425000
(180000+95000+150000)
Investment of Gustafson 125000
Interest of Gustafson 20%
Total capital of new partnership 550000
(425000+125000)
Value of Gustafson's Capital 110000
(550000*20/100)
Calculation of Goodwill
Gustafson's investment - Gustafson's capital value 15000
(125000-110000)
Journal
Description Debit Credit
Cash A/c   Dr 125000
    To Gustafson's Capital 110000
    To Goodwill 15000
Statement of partners new capital
Danielson - 183750
Eklund - 101750
Forsberg - 154500
Gustafson - 110000
Goodwill method
Case B
Total capital of DEF 425000
(180000+95000+150000)
Investment of Gustafson 90000
Interest of Gustafson 20%
Total capital of new partnership 515000
(425000+90000)
Value of Gustafson's Capital 103000
(515000*20/100)
Calculation of Goodwill
Gustafson's investment - Gustafson's capital value 13000
(103000-90000)
Journal
Description Debit Credit
Cash A/c   Dr 90000
Goodwill A/c Dr 13000
    To Gustafson's Capital 103000
Statement of partners new capital
Danielson - 180000
Eklund - 95000
Forsberg - 150000
Gustafson - 103000

ekkarill92 answered 2 years ago
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