Question

A partnership of attorneys in the St. Louis, Missouri, area has the following balance sheet accounts as of January 1, 2018:

Assets	$	370,000	Liabilities	$	116,000
			Athos, capital		98,000
			Porthos, capital		88,000
			Aramis, capital		68,000

According to the articles of partnership, Athos is to receive an allocation of 50 percent of all partnership profits and losses while Porthos receives 30 percent and Aramis, 20 percent. The book value of each asset and liability should be considered an accurate representation of fair value.

For each of the following independent situations, prepare the journal entry or entries to be recorded by the partnership.

Porthos, with permission of the other partners, decides to sell half of his partnership interest to D’Artagnan for $56,000 in cash. No asset revaluation or goodwill is to be recorded by the partnership.

All three of the present partners agree to sell 10 percent of each partnership interest to D'Artagnan for a total cash payment of $32,000. Each partner receives a negotiated portion of this amount. Goodwill is recorded as a result of the transaction.

D'Artagnan is allowed to become a partner with a 10 percent ownership interest by contributing $42,000 in cash directly into the business. The bonus method is used to record this admission.

Use the same facts as in requirement (c) except that the entrance into the partnership is recorded by the goodwill method.

Answer 1

Prepare the following journal entries:

Requirement A
Date	Account Title and Explanation	Debit	Credit
Jan 1	Partner Por, Capital ($88,000 × 50%)	$44,000
	Partner D'Ar, Capital		$44,000
	To record the sale of 50% interest in partnership by Por
Requirement B
Jan 1	Goodwill ($32,000 ÷ 10%) ? ($98,000 + $88,000 + $68,000)	$66,000
	Partner Ath, Capital ($66,000 × 50%)		$33,000
	Partner Por, Capital ($66,000 × 30%)		$19,800
	Partner Ara, Capital ($66,000 × 20%)		$13,200
	To record goodwill
	Partner Ath, Capital ($98,000 + $33,000) × 10%	$13,100
	Partner Por, Capital ($88,000 + $19,800) × 10%	$10,780
	Partner Ara, Capital ($68,000 + $13,200) × 10%	$8,120
	Partner D'Ar, Capital		$32,000
	To the share of new partner in partnership
Requirement C
Jan 1	Cash	$42,000
	Partner D'Ar, Capital ($254,000 + $42,000) × 10%		$29,600
	Partner Ath, Capital ($42,000 ? $29,600) × 50%		$6,200
	Partner Por, Capital ($42,000 ? $29,600) × 30%		$3,720
	Partner Ara, Capital ($42,000 ? $29,600) × 20%		$2,480
	To record admisstion of a new partner and bonus to old partners
Requirement D
Jan 1	Cash	$42,000
	Goodwill (42,000 ÷ 10%) ? (98000 + 88000 + 68000 + 42000)	$124,000
	Partner D'Ar, Capital		$42,000
	Partner Ath, Capital 124,000 × 50%		$62,000
	Partner Por, Capital 124,000 × 30%		$37,200
	Partner Ara, Capital 124,000 × 20%		$24,800
	To record admisstion of a new partner and goodwill to old partners