Question

Phil Phoenix and Tim Tucson are partners in electrical repair business. Their respective capital balances are $90,000 and $50,000. and they share profits and losses equally. Because the partners are confronted with personal and financial problems, they decided to admit a new partner to the partnership. After an extensive interviewing process they elect to admit Don Dallas into the partnership. Required: Prepare the journal entry to record the admission of Don Dallas into the partnership under each of the following conditions:

A) Don acquires one-fourth of Phil's capital interest by paying $30,000 directly to him.

Answer using Bonus and Good Will Method

B) Don invests $40,000 for a one-fifth interest in partnership capital. Payment is made to the partnership.

Answer using Bonus and Good Will Method

C) Don acquires one-fifth of each of Phil's and Tim's capital interests. Phil receives $25,000 and Tim receives $15.000 directly from Don.

Answer using Bonus and Good Will Method

D) Don acquires a one-fifth capital interest for a $60,000 cash investment in the partnership. Total capital after the admission is to be $200,000.

Answer using Bonus and Good Will Method

Answer 1

A. Don acquires one-fourth of Phil's capital interest by paying $30,000 directly to him

Account	Debit	Credit
Phil Phoenix, Capital	$22,500
Don Dallas, Capital		$22,500

$90,000 (Phil's Capital) * 25%

B. Don invests $40,000 for a one-fifth interest in partnership capital. Payment is made to the partnership

Don's investment	$40,000
Interest acquired (1/5 = 20%)	20%
Total capital ($40,000 / 20%)	$200,000
Less:
Phil's capital	$90,000
Tim's capital	$50,000
Don's investment	$40,000
Goodwill	$20,000

C. Don acquires one-fifth of each of Phil's and Tim's capital interests. Phil receives $25,000 and Tim receives $15.000 directly from Don

Account	Debit	Credit
Phil Phoenix, Capital	$18,000
Tim Tucson, Capital	$10,000
Don Dallas, Capital		$28,000

$90,000 (Phil's capital) * 20%

$50,000 (Tim's capital) * 20%

D. Don acquires a one-fifth capital interest for a $60,000 cash investment in the partnership. Total capital after the admission is to be $200,000

Account	Debit	Credit
Cash	$60,000
Don Dallas, Capital		$40,000
Phil Phoenix, Capital*		$10,000
Tim Tucson, Capital*		$10,000

$90,000 (Phil's Capital) + $50,000 (Tim's Capital) + $60,000 (Cash) = $200,000 (Total Capital)

Don's Capital = $200,000 * 20% = $40,000

* The amount is distributed equally between Phil and Tim as per their sharing ratio