Chapter 15, Problem 15.11P

a.

To determine

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.

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

To determine

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 goodwill or bonus is recorded.

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

To determine

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.

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 1/4^th 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

To determine

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.

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

To determine

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.

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

To determine

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.

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 1/5^th 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

To determine

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.

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