Question

The Distance Plus partnership has the following capital balances at the beginning of the current year:

Tiger (40% of profits and losses)	$	80,000
Phil (40%)		50,000
Ernie (20%)		65,000
Each of the following questions should be viewed independently. A. If Sergio invests $100,000 in cash in the business for a 30 percent interest, what journal entry is recorded? Assume that the bonus method is used. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) Record the admission of new partner under bonus method. Transaction General Journal Debit Credit Required A B. If Sergio invests $75,000 in cash in the business for a 30 percent interest, what journal entry is recorded? Assume that the bonus method is used. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) Record the admission of new partner under bonus method. Transaction General Journal Debit Credit Required B C. If Sergio invests $90,000 in cash in the business for a 30 percent interest, what journal entry is recorded? Assume that the goodwill method is used. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) Record the entry for goodwill allocation, during the admission of a new partner. Transaction General Journal Debit Credit Required C

Answer 1

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a.
	Tiger	80000
	Phil	50000
	Ernie	65000
	Sergio	100000
	Total Capital	295000
	Sergio's Capital Portion (30%)	300000*30%	90000
	Sergio Paid Cash		100000
	Bonus	100000-90000	10000
	Will be giving to exising partners in Profit sharing ratio 4:4:2
	Cash Debit	100000
	Sergio, Capital Credit		90000
	Tiger, Capital Credit		4000	10000*4/10
	Phil, Capital Credit		4000	10000*4/10
	Ernie, Capital Credit		2000	10000*2/10
b.	Tiger	80000
	Phil	50000
	Ernie	65000
	Sergio	75000
	Total Capital	270000
	Sergio's Capital Portion (30%)	270000*30%	81000
	Sergio Paid Cash		75000
	Bonus to be take from old partner	81000-75000	-6000
	Will be giving to exising partners in Profit sharing ratio 4:4:2
	Cash Debit	75000
	Tiger, Capital Debit	2400		6000*4/10
	Phil, Capital Debit	2400		6000*4/10
	Ernie, Capital Debit	1200		6000*2/10
	Sergio, Capital Credit		81000
c.	Tiger	80000
	Phil	50000
	Ernie	65000
	Sergio	90000
	Total Capital	285000
	Implied Value of partnership (90000/30%)	300000
	Hence Goodwill 300000-285000	15000
	goodwill of $15,000 must be recognized with the offsetting allocation
	to the original partners based on their profit and loss ratio:
	Tiger—$6,000 (40%), Phil— $6,000 (40%), and Ernie—$3,000 (20%)
	Goodwill Account Debit	15000
	Tiger, Capital Credit		6000
	Phil, Capital Credit		6000
	Ernie, Capital Credit		3000
	Cash Debit	72000
	Sergio, Capital Credit		72000