Please show calculations Styles Chapter 14: Partnerships: Formation and Operatio
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Question
Please show calculations
Styles Chapter 14: Partnerships: Formation and Operation Make all necessary Journal Entries for the following examples. Example 1: Accounting for Capital Contributions-Cash Carter and Green form a business to be operated as a partnership. Carter contributes S50,000 in cash and Green invests $20,000 Example 2: Accounting for Capital Contributions-Cash and Tangible assests Carter invests $50,000 cash and Green contributes the following assets: Book Value to Green Fair Value Inventory S 9,000 14.000 32.000 S 55.000 $10,000 11,000 46,000 567,000 Land Building Total Green building is encumbered by a S23,600 mortgage that the partnership has agreed to assume. Example 3: Intangible Contributions James and Joyce plan to open an advertising agency and decide to organize the endeavor as a partnership. James contributes cash of $70,000, and Joyce invests only $10,000. Joyce is an accomplished graphic artist. Agree to share profit and loss equally (50 50). Bonus Method: Goodwill Method:Explanation / Answer
1)
Cash
70,000
Carter, Capital
50,000
Green, Capital
20,000
2)
Cash
50,000
Inventory
10,000
Land
11,000
Building
46,000
Mortgage payable
23,600
Carter, Capital
50,000
Green, Capital (67,000-23,600)
43,400
3)
Bonus method:
Cash
80,000
James, Capital
40,000
Joyce, Capital
40,000
Explanation: The bonus method simply splits the $80,000 capital evenly among the two partners - James and Joyce. The bonus method makes an assumption that Joyce’s artistic abilities do not constitute a recordable partnership asset with a measurable cost. The approach recognizes only the assets that are physically transferred to the company
Goodwill method:
Cash
80,000
Goodwill
60,000
James, Capital
70,000
Joyce, Capital
70,000
Explanation: The goodwill method assumes that an implied value can be computed mathematically and recorded for any intangible contribution made by a partner. In the given scenario, Joyce invested $10,000 cash, $60,000 less than James, however receives an equal amount of capital according to the partnership agreement. Thus Joyce’s artistic talent has an apparent value of $60,000, and it must be included as part investment of this partner’s capital
Cash
70,000
Carter, Capital
50,000
Green, Capital
20,000
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