Concept explainers
a.
Identify the
a.
Explanation of Solution
Journal entry for the transaction
Date | Accounts and Explanation | Post 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
Calculate capital balance of person S
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
Now
b.
Identify the journal entry which should be recorded if person S invests $60,000 in cash in the business for a 25 percent interest when bonus method is used.
b.
Explanation of Solution
Journal entry for the transaction
Date | Accounts and Explanation | Post Ref. | Debit ($) | 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
Calculate capital balance of person S
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
Now
c.
Identify the journal entry which should be recorded if person S invests $72,000 in cash in the business for a 25 percent interest when
c.
Explanation of Solution
Journal entry for the transaction
Date | Accounts and Explanation | Post Ref. | Debit ($) | 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
Calculate implied capital of the business
Calculate goodwill
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
Now
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