Question

In: Accounting

A partnership of attorneys in the St. Louis, Missouri, area has the following balance sheet accounts...

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.

Solutions

Expert Solution

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

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