Question

In: Accounting

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

The Distance Plus partnership has the following capital balances at the beginning of the current year: Tiger (50% of profits and losses) $ 175,000 Phil (30%) 145,000 Ernie (20%) 160,000 Each of the following questions should be viewed independently. a. If Sergio invests $190,000 in cash in the business for a 25 percent interest, what journal entry is recorded? Assume that the bonus method is used b. If Sergio invests $150,000 in cash in the business for a 25 percent interest, what journal entry is recorded? Assume that the bonus c. If Sergio invests $170,000 in cash in the business for a 25 percent interest, what journal entry is recorded? Assume that the goodwill method is used

Solutions

Expert Solution

Solution:

Ratio of profit between Tiger, Phil and Ernie = 5:3:2

Total capital after new capital introduced by Sergio = $175,000 + $145,000 + $160,000 + $190,000 = $670,000

Sergio share in Partnership = 25%

Therefore required share of capital by Sergio = 670000 * 25% = $167,500

Bonus Capital introduced by Sergio = $190,000 - $167,500 = $22,500

Bonus capital will be distributed in Tiger, Phil and Ernie in ratio of 5:3:2

Journal Entries - Distance Plus Partnership
S. No. Particulars Debit Credit
1 Cash Dr $190,000.00
           To Sergio's Capital $190,000.00
(Being capital introduced by new partner)
2 Sergio's Capital Dr $22,500.00
           To Tiger's Capital ($22,500*5/10) $11,250.00
           To Phil's Capital ($22,500*3/10) $6,750.00
           To Ernie's Capital ($22,500*2/10) $4,500.00
(Being bonus capital of new partner distributed in old partners)

Solution b:

Ratio of profit between Tiger, Phil and Ernie = 5:3:2

Total capital after new capital introduced by Sergio = $175,000 + $145,000 + $160,000 + $150,000 = $630,000

Sergio share in Partnership = 25%

Therefore required share of capital by Sergio = 630000 * 25% = $157,500

As capital introduced by Sergio is lesser by $7,500 therefore old partner capital share will be given to Sergio in their profit sharing ratio i.e. 5:3:2

Journal Entries - Distance Plus Partnership
S. No. Particulars Debit Credit
1 Cash Dr $150,000.00
           To Sergio's Capital $150,000.00
(Being capital introduced by new partner)
2 Tiger's Capital Dr ($7,500*5/10) $3,750.00
Phil's Capital Dr ($7,500*3/10) $2,250.00
Ernie's Capital Dr ($7,500*2/10) $1,500.00
           To Sergio's Capital $7,500.00
(Being old partner share of capital given to new partner)

Solution 3:

Ratio of profit between Tiger, Phil and Ernie = 5:3:2

Capital Introduced by Sergio = $170,000

Smith share in Partnership = 25%

Therefore required partnership capital on the basis of capital introduced by Sergio = $170,000/25% = $680,000

Total capital after new capital introduced by Smith = $175,000 + $145,000 + $160,000 + $170,000 = $650,000

Therefore Goodwill = $680,000 - $650,000 = $30,000

Goodwill will be distributed to Tiger, Phil and Ernie in ratio of 5:3:2

Journal Entries - Distance Plus Partnership
S. No. Particulars Debit Credit
1 Cash Dr $170,000.00
           To Sergio's Capital $170,000.00
(Being capital introduced by new partner)
2 Goodwill Dr $30,000.00
           To Tiger's Capital ($30,000*5/10) $15,000.00
           To Phil's Capital ($30,000*3/10) $9,000.00
           To Ernie's Capital ($30,000*2/10) $6,000.00
(Being recording of goodwill at the time of admission of new partner.)

Related Solutions

The Distance Plus partnership has the following capital balances at the beginning of the current year:...
The Distance Plus partnership has the following capital balances at the beginning of the current year: Tiger (40% of profits and losses) $ 125,000 Phil (20%) 95,000 Ernie (40%) 110,000 Each of the following questions should be viewed independently. A.If Sergio invests $150,000 in cash in the business for a 30 percent interest, what journal entry is recorded? Assume that the bonus method is used. B. If Sergio invests $140,000 in cash in the business for a 30 percent interest,...
The Distance Plus partnership has the following capital balances at the beginning of the current year:...
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...
The Distance Plus partnership has the following capital balances at the beginning of the current year:...
The Distance Plus partnership has the following capital balances at the beginning of the current year:   Tiger (50% of profits and losses) $ 70,000   Phil (40%) 40,000   Ernie (10%) 55,000 If Sergio invests $60,000 in cash in the business for a 20 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.)
The Distance Plus partnership has the following capital balances at the beginning of the current year:...
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 Distance Plus partnership has the following capital balances at the beginning of the current year:...
The Distance Plus partnership has the following capital balances at the beginning of the current year: Tiger (50% of profits and losses) $ 100,000 Phil (40%) 70,000 Ernie (10%) 85,000 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. 1. Record the admission of new partner under bonus method. If Sergio invests $80,000 in...
The E.N.D. partnership has the following capital balances as of the end of the current year....
The E.N.D. partnership has the following capital balances as of the end of the current year. Pineda $ 140,000Adams 120,000Fergie 110.000Gomez 100.000 Total capital  $470,000Answer each of the following independent questions:a. Assume that the partners share profits and losses 3.3.2.2, respectively. Fergie retires and is paid $140,000 based on the terms of the original partnership agreement. If the goodwill method is used, what is the capital balance of the remaining three partners? b. Assume that the partners share profits and losses 4.3:2:1, respectively Pineda retires and is...
The E.N.D. partnership has the following capital balances as of the end of the current year:...
The E.N.D. partnership has the following capital balances as of the end of the current year: Pineda $ 310,000 Adams 280,000 Fergie 270,000 Gomez 260,000 Total capital $ 1,120,000 Answer each of the following independent questions: Assume that the partners share profits and losses 3:3:2:2, respectively. Fergie retires and is paid $312,000 based on the terms of the original partnership agreement. If the goodwill method is used, what is the capital balance of the remaining three partners? Assume that the...
The E.N.D. partnership has the following capital balances as of the end of the current year:...
The E.N.D. partnership has the following capital balances as of the end of the current year: Pineda $ 290,000 Adams 260,000 Fergie 250,000 Gomez 240,000 Total capital $ 1,040,000 Answer each of the following independent questions: a. Assume that the partners share profits and losses 3:3:2:2, respectively. Fergie retires and is paid $280,000 based on the terms of the original partnership agreement. If the goodwill method is used, what is the capital balance of the remaining three partners? b. Assume...
The E.N.D. partnership has the following capital balances as of the end of the current year:...
The E.N.D. partnership has the following capital balances as of the end of the current year: Pineda $ 310,000 Adams 270,000 Fergie 240,000 Gomez 220,000 Total capital $ 1,040,000 Answer each of the following independent questions: Assume that the partners share profits and losses 3:3:2:2, respectively. Fergie retires and is paid $285,000 based on the terms of the original partnership agreement. If the goodwill method is used, what is the capital balance of the remaining three partners? Assume that the...
The E.N.D. partnership has the following capital balances as of the end of the current year:...
The E.N.D. partnership has the following capital balances as of the end of the current year: Pineda $ 210,000 Adams 190,000 Fergie 180,000 Gomez 170,000 Total capital $ 750,000 Answer each of the following independent questions: Assume that the partners share profits and losses 3:3:2:2, respectively. Fergie retires and is paid $211,000 based on the terms of the original partnership agreement. If the goodwill method is used, what is the capital balance of the remaining three partners? Assume that the...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT