Question

1. Rick, Mary, and Joe formed a partnership on January 1, 2017, with investments of $100,000, $150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the beginning capital balance each year, (2) annual compensation of $10,000 to Mary, and (3) sharing the remainder of the income or loss in a ratio of 20% for Rick, and 40% each for Mary and Joe. Net income was $150,000 in 2017 and $180,000 in 2018.

Each partner withdrew $1,000 for personal use every month during 2017 and 2018.

1. Please prepare the Statement of Partners' Capital Balances for 2017 & 2018. 2. The capital balances of the DEF Partnership are as follows:

   

Danielson Eklund Forsberg Total

$180,000 95,000 150,000 $425,000

The partners' income sharing ratio is: Danielson, 25%; Eklund, 45%; Forsberg, 30%. Assume the partnership's identifiable net assets are carried at amounts approximating fair value.

1.Assume Gustafson joins the partnership by contributing $125,000 to the partnership for a 20% interest in partnership capital.

2.

Now assume Gustafson paid $90,000 for a 20% interest in partnership capital.

3.Each case is independent, use both Bonus method and Goodwill method to analyze the problem. Prepare the Statement of Partners' Capital Balances, as well as the related journals prepared for the partnership.

Answer 1

2017
	Rick	Mary	Joe	Total
Profit				$      1,50,000
Salary Allowances	$                    -	$              10,000	$                      -	$         10,000
Interest allowances	$           10,000	$              15,000	$             20,000	$         45,000
Total Salary and interest allocation	$           10,000	$              25,000	$             20,000	$         55,000
Balance of Profit				$         95,000
Balance allocated equally	$           19,000	$              38,000	$             38,000	$         95,000
Balance of Profit				$                  -
Shares of Partners	$           29,000	$              63,000	$             58,000	$      1,50,000
	Conway	Chan	Scott	Total
Capital, January 1, 2017	$                    -	$                       -	$                      -	$                  -
Capital Contributions	$        1,00,000	$           1,50,000	$          2,00,000	$      4,50,000
Share of Partners	$           29,000	$              63,000	$             58,000	$      1,50,000
Total	$        1,29,000	$           2,13,000	$          2,58,000	$      6,00,000
Withdrawls	$           12,000	$              12,000	$             12,000	$         36,000
Capital, December 31, 2017	$        1,17,000	$          2,01,000	$         2,46,000	$      5,64,000

2018

2018
	Rick	Mary	Joe	Total
Profit				$      1,80,000
Salary Allowances	$                    -	$              10,000	$                      -	$         10,000
Interest allowances	$           11,700	$              20,100	$             24,600	$         56,400
Total Salary and interest allocation	$           11,700	$              30,100	$             24,600	$         66,400
Balance of Profit				$      1,13,600
Balance allocated equally	$           22,720	$              45,440	$             45,440	$      1,13,600
Balance of Profit				$                  -
Shares of Partners	$           34,420	$              75,540	$             70,040	$      1,80,000
	Conway	Chan	Scott	Total
Capital, January 1, 2018	$        1,17,000	$           2,01,000	$          2,46,000	$      5,64,000
Capital Contributions	$                    -	$                       -	$                      -	$                  -
Share of Partners	$           34,420	$              75,540	$             70,040	$      1,80,000
Total	$        1,51,420	$           2,76,540	$          3,16,040	$      7,44,000
Withdrawls	$           12,000	$              12,000	$             12,000	$         36,000
Capital, December 31, 2018	$        1,39,420	$          2,64,540	$         3,04,040	$      7,08,000