Fundamentals of Advanced Accounting
Fundamentals of Advanced Accounting
7th Edition
ISBN: 9781259722639
Author: Joe Ben Hoyle, Thomas Schaefer, Timothy Doupnik
Publisher: McGraw-Hill Education
bartleby

Concept explainers

Question
Book Icon
Chapter 9, Problem 18P

a.

To determine

Identify the journal entry which should be recorded if person S invests $100,000 in cash in the business for a 25 percent interest when bonus method is used.

a.

Expert Solution
Check Mark

Explanation of Solution

Journal entry for the transaction

DateAccounts and ExplanationPost Ref.Debit ($)Credit ($)
     
 Cash  $ 100,000 
 Person T's Capital   $   12,500
 Person P's Capital   $     7,500
 Person E's Capital   $     5,000
 Person S's Capital   $   75,000
     
 (To record admission of person S)   

Working note

Calculate total capital for new partnership

Totalcapital=$85,000+$60,000+$55,000+$100,000=$300,000

Calculate capital balance of person S

CapitalbalanceofpersonS=$300,000×25%=$75,000

Capital balance of person S is $75,000 and he has invested $100,000. So, $25,000 is the bonus amount which is distributed among the existing partners.

Calculation of distribution of bonus share among existing partners

BonusshareofpersonT=$25,000×50%=$12,500BonusshareofpersonP=$25,000×30%=$7,500

Now

BonusshareofpersonE=$25,000×20%=$5,000

b.

To determine

Identify the journal entry which should be recorded if person S invests $60,000 in cash in the business for a 25 percent interest when bonus method is used.

b.

Expert Solution
Check Mark

Explanation of Solution

Journal entry for the transaction

DateAccounts and ExplanationPost Ref.Debit ($)Credit ($)
     
 Cash  $   60,000 
 Person T's Capital  $     2,500 
 Person P's Capital  $     1,500 
 Person E's Capital  $     1,000 
 Person S's Capital   $   65,000
     
 (To record admission of person S)   

Working note

Calculate total capital for new partnership

Totalcapital=$85,000+$60,000+$55,000+$60,000=$260,000

Calculate capital balance of person S

CapitalbalanceofpersonS=$260,000×25%=$65,000

Capital balance of person S is $65,000 and he has invested $60,000. So, $5,000 is the loss amount which is distributed among the existing partners.

Calculation of distribution of loss share among existing partners

LossshareofpersonT=$5,000×50%=$2,500LossshareofpersonP=$5,000×30%=$1,500

Now

Loss shareofpersonE=$5,000×20%=$1,000

c.

To determine

Identify the journal entry which should be recorded if person S invests $72,000 in cash in the business for a 25 percent interest when goodwill method is used.

c.

Expert Solution
Check Mark

Explanation of Solution

Journal entry for the transaction

DateAccounts and ExplanationPost Ref.Debit ($)Credit ($)
     
 Goodwill  $   16,000 
 Person T's Capital   $     8,000
 Person P's Capital   $     4,800
 Person E's Capital   $     3,200
     
 (To distribution of goodwill)   
     
 Cash  $   72,000 
 Person S's capital   $   72,000
     
 (To record admission of person S)   
     

Working note

Calculate total capital for new partnership

Totalcapital=$85,000+$60,000+$55,000+$72,000=$272,000

Calculate implied capital of the business

Implied capital=$7200025%=$72,000×10025=$7,200,00025=$288,000

Calculate goodwill

Goodwill=ImpliedvalueTotalcapital=$288,000$272,000=$16,000

Goodwill is $16,000 and it is distributed among the existing partners in their profit sharing ratios.

Calculation of distribution of goodwill share among existing partners

GoodwillshareofpersonT=$16,000×50%=$8,000GoodwillshareofpersonP=$16,000×30%=$4,800

Now

GoodwillshareofpersonE=$16,000×20%=$3,200

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Knowledge Booster
Background pattern image
Accounting
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Recommended textbooks for you
Text book image
FINANCIAL ACCOUNTING
Accounting
ISBN:9781259964947
Author:Libby
Publisher:MCG
Text book image
Accounting
Accounting
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:Cengage Learning,
Text book image
Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,
Text book image
Horngren's Cost Accounting: A Managerial Emphasis...
Accounting
ISBN:9780134475585
Author:Srikant M. Datar, Madhav V. Rajan
Publisher:PEARSON
Text book image
Intermediate Accounting
Accounting
ISBN:9781259722660
Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:McGraw-Hill Education
Text book image
Financial and Managerial Accounting
Accounting
ISBN:9781259726705
Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:McGraw-Hill Education