Admission of new partner-Goodwill Method Assume that Partners A and B each report a Capital Account of $300,000. Partner C wants to join the partnership as an equal one-third partner. Because the partnership has been very profitable, Partners A and B require Partner C to contribute $600,000 in cash to the partnership in return for a one-third interest. Assume that Partners A and B share profits 60% and 40 % , respectively, prior to the admission of Partner C. Assume that the partners believe that the payment by Partner C provides evidence of a previously unrecorded intangible asset in the partnership and the partners wish to record the intangible on the post- realignment partnership balance sheet. After admission of Partner C, Partners A and B retain their relative proportion of profit allocation after granting Partner C a 30% profit-allocation interest. Use the Goodwill Method to record the journal entry on the books of the partnership to reflect the admission of Partner C. Description Debit Credit Cash Capital Account, Partner A Capital Account, Partner B ♦ +
Admission of new partner-Goodwill Method Assume that Partners A and B each report a Capital Account of $300,000. Partner C wants to join the partnership as an equal one-third partner. Because the partnership has been very profitable, Partners A and B require Partner C to contribute $600,000 in cash to the partnership in return for a one-third interest. Assume that Partners A and B share profits 60% and 40 % , respectively, prior to the admission of Partner C. Assume that the partners believe that the payment by Partner C provides evidence of a previously unrecorded intangible asset in the partnership and the partners wish to record the intangible on the post- realignment partnership balance sheet. After admission of Partner C, Partners A and B retain their relative proportion of profit allocation after granting Partner C a 30% profit-allocation interest. Use the Goodwill Method to record the journal entry on the books of the partnership to reflect the admission of Partner C. Description Debit Credit Cash Capital Account, Partner A Capital Account, Partner B ♦ +
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Concept explainers
Partnership Accounting
A partnership is a kind of arrangement between two or more people whereby they agree to manage the business operations and share its profits and losses in an agreed ratio between them. The agreement that is drafted and signed by the partners of the firm is termed as partnership deed and contains various important clauses agreed between the partners such as profit/loss sharing, interest on capital, remuneration allocation of each partner, drawings, admission of a new partner, etc.
Partner Admission and Withdrawal
A partnership is a kind of arrangement between two or more people whereby they agree to manage the business operations and share its profits and losses in an agreed ratio between them. The agreement that is drafted and signed by the partners of the firm is termed as a partnership deed and contains various important clauses agreed between the partners such as profit/loss sharing, interest on capital, remuneration allocation of each partner, drawings of a partner, etc.
Question
Transcribed Image Text:Admission of new partner-Goodwill Method
Assume that Partners A and B each report a Capital Account of $300,000. Partner C wants to join the partnership as an equal one-third partner. Because the partnership has been very profitable, Partners A and B
require Partner C to contribute $600,000 in cash to the partnership in return for a one-third interest. Assume that Partners A and B share profits 60% and 40%, respectively, prior to the admission of Partner C.
Assume that the partners believe that the payment by Partner C provides evidence of a previously unrecorded intangible asset in the partnership and the partners wish to record the intangible on the post-
realignment partnership balance sheet. After admission of Partner C, Partners A and B retain their relative proportion of profit allocation after granting Partner C a 30% profit-allocation interest. Use the Goodwill
Method to record the journal entry on the books of the partnership to reflect the admission of Partner C.
Description
Debit
Credit
Cash
Capital Account, Partner A
Capital Account, Partner B
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