HomeworkAssignment#2(Partnership Formation, etc.) I. Facts: Alice, Bob, and Caro

Question

HomeworkAssignment#2(Partnership Formation, etc.) I. Facts: Alice, Bob, and Carol are partners in a computer repair business. The following balance sheet is for the partnership prior to the admission of a new partner, Ted: Cash Other Assets $120,000 90,000 $210,000 Total Assets 30,000 Liabilities Alice, Capital (20%) Bob, Capital (30%) Carol, capital (50%) 70,000 50,000 Total Liabilities &Partners;' Equity $210,000 Figures shown in parentheses reflect agreed-upon profit-and-loss-sharing percentages. Required: Prepare the necessary journal entries to record the admission of Ted in each of the following independent stuations. 1. Ted is to invest sufficient cash to receive a 1/4 capital interest. The admission is to be re- corded without recognizing goodwill or a bonus. 2. Ted is to invest $50,000 for a one-fifth capital interest. (Use bonus and goodwill methods.) 3. Ted purchases Carol's interest for $52,000.

Explanation / Answer

Requirement A Date Account Title and Explanation Debit Credit Jan-01 Cash $60,000 Partner ' Capital Ted $60,000 To Record Cash Ivested by Ted for 1/4 th Share ( W/Note-1) Requirement B Jan-01 Cash A/c $50,000 Goodwill A/c $20,000              Partner Alice, Capital ($20,000 × 50%) $10,000              Partner Bob, Capital ($20,000 × 30%) $6,000              Partner carol, Capital ($20,000 × 20%) $4,000              Partner Ted, Capital $50,000 To the share of new partner in partnership and allocaion goodwill Requirement C Jan-01 Partner Carol , Capital $52,000              Partner Ted, Capital $52,000 To Record sell of Carol Interest Working Note-1 Total Capital Invested by Existed Partner : $180000 Total capital of Firm ($180000/75%)= $240000 Capital will be invested by Partner's Ted" ($240000*1/4)=$60000 Working Note-2 Total Capital Invested by Existed Partner : $180000 Capital Invested by new Partner' Ted:          $50000 Total Capital of the Firm:- $230000 Sahre of New Partner= 20% Required Capital :- $50000/20%= $250000 Goodwill= $250000-$230000= $20000

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