Question

Following is the current balance sheet for a local partnership of doctors: Cash and Current Assets $ 39,000 Liabilities $ 52,000 Land 234,000 Adams, cap 26,000 Building 130,000 Barnes, cap 52,000 Cordas, cap 117,000 Total $403,000 Davis, cap 156,000 Total $403,000

a. Eden contributes $80,000 into the partnership for a 25% interest. The four original partners share profits and losses equally. Using the bonus method, prepare the journal entry to record Eden's admission

. b. Instead of contributing $80,000 as in (a), assume that she contributed $124,000 in cash into the business to receive a 20% interest. Goodwill is to be recorded. The four original partners share profits and losses equally. Prepare the journal entries to share the admission.

c. Using the same starting data again, assume that Eden acquires a 20% interest by contributing $71,500 directly to the other four partners. No goodwill is to be recorded. Profits and losses have been split 15%, 35%, 30%, 20% (in alphabetical order). Prepare the journal entry to show Eden's admission.

Answer 1

Answer a.

Account	debit	credit
Cash	80000
Adams, captal	6937.50
Barnes capital	6937.50
Cordas, capital	6937.50
Davis, capital	6937.50
Eden capital		107750

Total capital = 26000 +52000 +117000 +156000 +80000 = 431000

25% interest = 431000 *0.25 = 107750

Answer b.

Account	debit	credit
Goodwill	145000
Adams, captal		36250
Barnes capital		36250
Cordas, capital		36250
Davis, capital		36250

Account	debit	credit
Cash	124000
Eden capital		124000

Total capital = 26000 +52000 +117000 +156000 +124000 = 475000

value of partnership =124000 /0.20 = 620000

goodwill = 620000 - 475000

Answer c.

Account	debit	credit
Adams, captal [26000*0.20]	5200
Barnes capital [52000*0.20]	10400
Cordas, capital [11700*0.20]	23400
Davis, capital   [156000*0.20]	31200
Eden capital		70200

Total capital = 26000 +52000 +117000 +156000 = 351000

20% interest = 351000 *0.25 = 70200