Question

1. We Hate Eachother Partnership has two partners, Hans and Gretal. Hans has an existing capital balance as of January 1st of $10,000 while Gretal has a balance of $15,000. Each partner gets a monthly salary of $500, and also receive 2% of their start of their year capital balance as an extra share of income. The partnership had net income of the year of $30,000. All remaining net income after any necessary allocations is split evenly. Make the journal entry showing the distribution of net income to each partners capital account:

2. Hans and Gretal now have a new partnership where they have a capital balance of $20,000 and $28,000 respectively. Goldilocks wants to join the partnership and pays $25,000 for a 1/3 share of the partnership. Journalize the necessary entry to show Goldilocks joining the partnership and either the increase or decrease to Hans and Gretal's capital balances.

Answer 1

Answer 1:

Distribution of profit of $30,000 among partners
	Hans($)	Gretal($)	Total
Salary	6,000	6,000	12,000
Interest on capital	200	300	500
Total	6,200	6,300	12,500
Distribution of (30,000-12,500)$17,500 evenly	8,750	8,750	17,500
Total profit share	14,950	15,050	30,000

In the books of M/s We hate Eachother
Date	Particulars	Dr($)	Cr($)
31-Dec	Profit & Loss A/c	30,000
	To Profit and Loss appropriation A/c		30,000
	(Being balance of P&L account transferred to appropriation a/c for distribution)
31-Dec	Salary to partners	12,000
	To Han's Capital a/c		6,000
	To Gretal's Capital a/c		6,000
	(Being salary paid to partners)
31-Dec	Profit and Loss appropriation A/c	12,000
	to Salary to partners		12,000
	(Being salary transferred to P&L appropriation a/c)
31-Dec	Interst on partner's capital a/c	500
	To Han's Capital A/c		200
	To Gretal's Capital A/c		300
	(Being Salary paid to partners)
31-Dec	Profit and Loss appropriation A/c	500
	To Interst on partner's capital a/c		500
	(Being Interst in partners capital transferred to P&L Appropriation account)
31-Dec	Profit and Loss appropriation A/c
	To Han's Capital A/c	8,750
	To Gretal's Capital A/c		8,750
	(Being final share in profit transferred to partner's capital account)

Answer 2: There are two methods for accounting for admission of new partner1.Goodwill mthod 2. Bonus Method

Goodwill method:

Amount invested by new partner= 25,000 New partner share = 1/3 Implied partnership valuation = 25,000 * 3 = 75,000

Existing partner capital = 48,000 New partner investment = 25,000 Paid in capital = 73,000 Required capital = 75,000 Goodwill = 75,000 - 73,000 = 2,000

Profit sharing ratio between existing partners = 1:1 each parnters share in goodwill=1000 each

Goodwill Method:

Date	Particulars	Dr($)	Cr($)
31-Dec	Cash	25,000
	To Goodwill	2,000
	To Han's Capital A/c		1,000
	To Gretal's Capital A/c		1,000
	To Goldilock's Capital A/c		25,000
	To Admission of new partner ans disctribution of goodwill among existing partners)

Bonus Method:

Paid in capital = $73,000 New partner share = 1/3 New partner capital = 73,000/3 = $24,334

New partner investment = $25,000 New partner capital allocation = $24,334 Bonus = 25000-24334=$666

 Profit sharing ratio = 1:1 Each partner's share=$333

Hans and Gretal's capital balances will decline by $1,000 each.

Date	Particulars	Dr($)	Cr(4)
31-Dec	Cash	25,000
	To Han's Capital A/c		333
	To Gretal's Capital A/c		333
	To Goldilock's Capital A/c		24,334
	To Admission of new partner ans disctribution of bonus among existing partners)

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