Concept explainers
a.
Admission of partner: Changes in the membership of partnership occurs with the addition of new partners or disassociation of present partners. New partners often bring additional capital or needed expertise. A new partner can only be admitted with unanimous approval of all the existing partners, further public announcements are made about admission of partner. Section 306 of Uniform partnership act UPA 1997 states that a new partners are not liable for any liability incurred before new partners admitted. Thus, a new partner can be charged for partnership liabilities of existing partnership to the extent of capital contribution at the time of admission.
The entries when W directly purchases half of M’s investment for $90,000.
a.
Answer to Problem 15.11P
| Debit | Credit | |
| M’s capital account | 80,000 | |
| W’s capital account | 80,000 |
Explanation of Solution
M’s investment in partnership is $160,000 half of which is $80,000 credited to W, and W pays $90,000 directly to M. No entry is required for payment as W paid M directly.
b
Admission of partner: Changes in the membership of partnership occurs with the addition of new partners or disassociation of present partners. New partners often bring additional capital or needed expertise. A new partner can only be admitted with unanimous approval of all the existing partners, further public announcements are made about admission of partner. Section 306 of Uniform partnership act UPA 1997 states that a new partners are not liable for any liability incurred before new partners admitted. Thus, a new partner can be charged for partnership liabilities of existing partnership to the extent of capital contribution at the time of admission.
The entry when W invests amount needed for one-third interest in partnership’s capital and no
b
Answer to Problem 15.11P
| Debit | Credit | |
| Cash | $180,000 | |
| W’s capital account | 180,000 |
Explanation of Solution
Determination of required investment by W
| 2/3 of total capital | $360,000 |
| Total resulting capital ($360,000 / .6666 | $540,000 |
| Amount to be invested by W ($540,000 x 1/3) | $180,000 |
Then investment by W is debited to cash account and credited to W’s capital account.
c
Admission of partner: Changes in the membership of partnership occurs with the addition of new partners or disassociation of present partners. New partners often bring additional capital or needed expertise. A new partner can only be admitted with unanimous approval of all the existing partners, further public announcements are made about admission of partner. Section 306 of Uniform partnership act UPA 1997 states that a new partners are not liable for any liability incurred before new partners admitted. Thus, a new partner can be charged for partnership liabilities of existing partnership to the extent of capital contribution at the time of admission.
The entry when W invests $110,000 for 25 percent interest in partnership and goodwill to be recorded.
c
Answer to Problem 15.11P
| Debit | Credit | |
| Cash | $110,000 | |
| Goodwill | 10,000 | |
| W’s capital account | 120,000 |
Explanation of Solution
Estimation of goodwill
As W is investing for 25 percent of interest which is 1/4th of total capital then
¾ estimated total resulting capital = $360,000
Estimated total resulting capital ($360,000 ÷ ¾) = $480,000
Determination of goodwill
Estimated total resulting capital = $480,000
Less: total assets excluding goodwill
($360,000 + 110,000 W’s investment) = ($470,000)
Goodwill =$10,000
d
Admission of partner: Changes in the membership of partnership occurs with the addition of new partners or disassociation of present partners. New partners often bring additional capital or needed expertise. A new partner can only be admitted with unanimous approval of all the existing partners, further public announcements are made about admission of partner. Section 306 of Uniform partnership act UPA 1997 states that a new partners are not liable for any liability incurred before new partners admitted. Thus, a new partner can be charged for partnership liabilities of existing partnership to the extent of capital contribution at the time of admission.
The entry when W invests $100,000 for 25 percent interest and inventory account decreased before W’s admission.
d
Answer to Problem 15.11P
| Debit | Credit | |
| To record write down of inventory | ||
| D’s capital account | 36,000 | |
| M’s capital account | 24,000 | |
| Inventory | 60,000 | |
| To record admission of W | ||
| Cash | $100,000 | |
| W’s capital account | 100,000 |
Explanation of Solution
Determination of write down of inventory
¼ estimated total resulting $100,000
Estimated total resulting capital ($100,000 ÷ ¼) $400,000
Inventory write down =
Estimated total resulting capital = $400,000
Total net assets before inventory write-down $360,000 + $100,000 W’s investment = ($460,000)
Inventory write-down=($60,000)
Value of inventory debit to D’s capital ($60,000 x .60) = $36,000
M’s capital ($60,000 x .40) = $24,000
e
Admission of partner: Changes in the membership of partnership occurs with the addition of new partners or disassociation of present partners. New partners often bring additional capital or needed expertise. A new partner can only be admitted with unanimous approval of all the existing partners, further public announcements are made about admission of partner. Section 306 of Uniform partnership act UPA 1997 states that a new partners are not liable for any liability incurred before new partners admitted. Thus, a new partner can be charged for partnership liabilities of existing partnership to the extent of capital contribution at the time of admission.
Requirement 5
the entry when W purchases 25 percent interest by paying D $80,000 and M $60,000. The value of land is increased before admission.
e
Answer to Problem 15.11P
| Debit | Credit | |
| Entry for revaluation of land | ||
| Land account | $200,000 | |
| D’s capital account | 120,000 | |
| M’s capital account | 80,000 | |
| To record admission of W | ||
| D’s capital account | $80,000 | |
| M’s capital account | 60,000 | |
| W’s capital account | 140,000 |
Explanation of Solution
Estimation of total capital
¼ of estimated total capital ($80,000 + $60,000) = $140,000
Estimated total resulting capital ($140,000 ÷ ¼) = $560,000
Estimation of increase in land value
Total estimated resulting capital = $560,000
Less: total net asset before revaluation of land
($200,000 + 160,000) (360,000)
Increase in land $200,000
D’s share in the increase in land value $200,000 x .60 = $120,000
M’s share in the increase in land value $200,000 x .40 = 80,000
f
Admission of partner: Changes in the membership of partnership occurs with the addition of new partners or disassociation of present partners. New partners often bring additional capital or needed expertise. A new partner can only be admitted with unanimous approval of all the existing partners, further public announcements are made about admission of partner. Section 306 of Uniform partnership act UPA 1997 states that a new partners are not liable for any liability incurred before new partners admitted. Thus, a new partner can be charged for partnership liabilities of existing partnership to the extent of capital contribution at the time of admission.
the entry when W invests $80,000 for 20 percent interest in the total capital of $440,000.
f
Answer to Problem 15.11P
| Debit | Credit | |
| Cash | $80,000 | |
| D’s capital account | 4,800 | |
| M’s capital account | 3,200 | |
| W’s capital account | 88,000 |
Explanation of Solution
W’s investment of $80,000 for 20 percent or 1/5th of interest
Investment in partnership $80,000
Less: New proportionate book value $440,000 x 1/5
($88,000)
Difference (investment cost < book value) (8,000)
g
Admission of partner: Changes in the membership of partnership occurs with the addition of new partners or disassociation of present partners. New partners often bring additional capital or needed expertise. A new partner can only be admitted with unanimous approval of all the existing partners, further public announcements are made about admission of partner. Section 306 of Uniform partnership act UPA 1997 states that a new partners are not liable for any liability incurred before new partners admitted. Thus, a new partner can be charged for partnership liabilities of existing partnership to the extent of capital contribution at the time of admission.
the entry when W invests $100,000 for 20 percent interest .goodwill to be recorded.
g
Answer to Problem 15.11P
| Debit | Credit | |
| To record goodwill | ||
| Goodwill | $40,000 | |
| D’s capital account | 24,000 | |
| M’s capital account | 16,000 | |
| To record admission of W | ||
| Cash | $100,000 | |
| W’s capital account | 100,000 |
Explanation of Solution
Estimation of total capital
1/5 of estimated total resulting capital $100,000
Estimated total resulting capital ($100,000 ÷ 1/5) $500,000
Estimation of goodwill
Estimated total resulting capital $500,000
Less: total net assets excluding goodwill
($360,000 + 100,000) ($460,000)
Estimated goodwill $ 40,000
D’s share of goodwill ($40,000 x .60) $24,000
M’s share of goodwill ($40,000 x .40) $16,000
Want to see more full solutions like this?
Chapter 15 Solutions
EBK ADVANCED FINANCIAL ACCOUNTING
- Juan contributes marketable securities to a partnership. The book value of the securities is $7,000 and they have a current market value of $10,000. What amount should the partnership record in Juans Capital account due to this contribution? A. $10,000 B. $7,000 C. $3,000 D. none of the abovearrow_forwardThe partnership of Tasha and Bill shares profits and losses in a 50:50 ratio, and the partners have capital balances of $45,000 each. Prepare a schedule showing how the bonus should be divided if Ashanti joins the partnership with a $60,000 investment. The partners new agreement will share profit and loss in a 1:3 ratio.arrow_forwardThe partnership of Magda and Sue shares profits and losses in a 50:50 ratio after Mary receives a $7,000 salary and Sue receives a $6,500 salary. Prepare a schedule showing how the profit and loss should be divided, assuming the profit or loss for the year is: A. $10,000 B. $5,000 C. ($12,000) In addition, show the resulting entries to each partners capital account.arrow_forward
- Arun and Margot want to admit Tammy as a third partner for their partnership. Their capital balances prior to Tammys admission are $50,000 each. Prepare a schedule showing how the bonus should be divided among the three, assuming the profit or loss agreement will be 1:3 once Tammy has been admitted and her contribution is: A. $20,000 B. $80,000 C. $50,000. In addition, show the resulting journal entries to each of the three partners capital accounts.arrow_forwardChani contributes equipment to a partnership that she purchased 2 years ago for $10,000. The current book value is $7,500 and the market value is $9,000. At what value should the partnership record the equipment? A. $10,000 B. $9,000 C. $7,500 D. none of the abovearrow_forwardSal Solan has a capital balance of $26,000; Sharon Silver's balance is $25,000. Grant Hill pays $110,000 to purchase Silver's interest in the Solan & Silver partnership. Silver gets the full $110,000. Requirements 1. Journalize the partnership's transaction to admit Hill to the partnership. 2. Must Solan accept Hill as a full partner? What rights does Hill have after purchasing Silver's interest in the partnership? Requirement 1. Journalize the partnership's transaction to admit Hill to the partnership. (Record debits first, then credits. Select the explanation on the last line of the journal entry table.) Date Accounts and Explanation Debit Creditarrow_forward
- Todd Stratton has a capital balance of $24,000; Sharon Silver's balance is $19,000. Gavin Howard pays $100,000 to purchase Silver's interest in the Stratton & Silver partnership. Silver gets the full $100,000. Requirements 1. Journalize the partnership's transaction to admit Howard to the partnership. 2. Must Stratton accept Howard as a full partner? What rights does Howard have after purchasing Silver's interest in the partnership? Requirement 1. Journalize the partnership's transaction to admit Howard to the partnership. (Record debits first, then credits. Select the explanation on the last line of the journal entry table.) Date Accounts and Explanation Debit Creditarrow_forwardAdmitting New Partner Who Contributes Assets After the tangible assets have been adjusted to current market prices, the capital accounts of Elayne Summers and Murv Newcomb have balances of $116,000 and $197,000, respectively. Rose Clayton is to be admitted to the partnership, contributing $78,000 cash to the partnership, for which she is to receive an ownership equity of $101,000. All partners share equally in income. a. Journalize the entry to record the admission of Rose Clayton, who is to receive a bonus of $23,000. If an amount box does not require an entry, leave it blank. b. What are the capital balances of each partner after the admission of the new partner? Partner ▼ Elayne Summers Murv Newcomb Rose Clayton Balance c. Why are tangible assets adjusted to current market prices prior to admitting a new partner? Tangible assets should be adjusted to current market prices so that the new partner any gains or losses from changes in market prices prior to being admitted. For example,…arrow_forwardDo not give answer in imagearrow_forward
- Admitting New Partner Who Contributes Assets After the tangible assets have been adjusted to current market prices, the capital accounts of Brad Paulson and Drew Webster have balances of $87,000 and $148,000, respectively. Austin Neel is to be admitted to the partnership, contributing $58,000 cash to the partnership, for which he is to receive an ownership equity of $75,000. All partners share equally in income. a. Journalize the entry to record the admission of Neel, who is to receive a bonus of $17,000. For a compound transaction, if an amount box does not require an entry, leave it blank. b. What are the capital balances of each partner after the admission of the new partner? Partner Brad Paulson Drew Webster Austin Neel Balance c. Why are tangible assets adjusted to current market prices prior to admitting a new partner? Tangible assets should be adjusted to current market prices so that the to being admitted. does not share in any gains or losses from changes in market pricesarrow_forwardTom and Jerry Answer letter c and d. Please show solution/explanation.arrow_forwardSal Solan has a capital balance of $23,000; Sam Scott's balance is $22,000. Barbara Hamlet pays $100,000 to purchase Scott's interest in the Solan & Scott partnership. Scott gets the full $100,000. Requirements 1. Journalize the partnership's transaction to admit Hamlet to the partnership. 2. Must Solan accept Hamlet as a full partner? What rights does Hamlet have after purchasing Scott's interest in the partnership?arrow_forward
Financial Accounting: The Impact on Decision Make...AccountingISBN:9781305654174Author:Gary A. Porter, Curtis L. NortonPublisher:Cengage Learning
Individual Income TaxesAccountingISBN:9780357109731Author:HoffmanPublisher:CENGAGE LEARNING - CONSIGNMENT