Beth, Steph, and Linda have been operating a small gift shop for several years. After an extensive review of their past operating performance, the partners concluded that the business needed to expand in order to provide an adequate return to the partners. The following balance sheet is for the partnership prior to the admission of a new partner, Mary. Cash $154,000 Other Assets 624,000 $778,000 Liabilities $196,000 Beth, Capital (40%) 270,000 Steph, Capital (40%) 198,000 Linda, Capital (20%) 114,000 $778,000 Figures shown parenthetically reflect agreed profit-and-loss sharing percentages. Prepare the necessary journal entries to record the admission of Mary in each of the following independent situations. Some situations may be recorded in more than one way. (a) Your answer is correct. Mary is to invest sufficient cash to receive a one-sixth capital interest. The parties agree that the admission is to be recorded without recognizing goodwill or bonus. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Account Titles and Explanation Debit Credit (b) Mary is to invest $160,000 for a one-fifth capital interest. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Account Titles and Explanation Credit Bonus Method Goodwill Method (To record goodwill) (To record investment)
Beth, Steph, and Linda have been operating a small gift shop for several years. After an extensive review of their past operating performance, the partners concluded that the business needed to expand in order to provide an adequate return to the partners. The following balance sheet is for the partnership prior to the admission of a new partner, Mary. Cash $154,000 Other Assets 624,000 $778,000 Liabilities $196,000 Beth, Capital (40%) 270,000 Steph, Capital (40%) 198,000 Linda, Capital (20%) 114,000 $778,000 Figures shown parenthetically reflect agreed profit-and-loss sharing percentages. Prepare the necessary journal entries to record the admission of Mary in each of the following independent situations. Some situations may be recorded in more than one way. (a) Your answer is correct. Mary is to invest sufficient cash to receive a one-sixth capital interest. The parties agree that the admission is to be recorded without recognizing goodwill or bonus. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Account Titles and Explanation Debit Credit (b) Mary is to invest $160,000 for a one-fifth capital interest. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Account Titles and Explanation Credit Bonus Method Goodwill Method (To record goodwill) (To record investment)
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.
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