he ABCD Partnership has the following balance sheet at January 1, 2017, prior to

Question

he ABCD Partnership has the following balance sheet at January 1, 2017, prior to the admission of new partner, Eden.

Cash and curret assets $39,000      Liabilities $52,000

Land $234,000                               Adams, Capital $26,000

Bulding and equipment $130,000 Barnes, Capital $52,000

                                                         Cordas, Capital $117,000

                                                          Davis, Capital $156,000

                                       $403,000                            $403,000

1. Eden contributes $49,000 into the partnership for a 25% interest. The four original partners share profits and losses equally. Using the bonus method, determine the balances for each of the five partners after Eden joins the partnership. 2.

2. Eden contributed $124,000 in cash to the business to receive a 20% interest in the partnership. Goodwill was to be recorded. The four original partners shared all profits and losses equally. After Eden made his investment, what were the individual capital balances?

3.. Eden acquired a 20% interest in the partnership by contributing a total of $71,500 directly to the other four partners. No goodwill is to be recorded. Profits and losses have previously been split according to the following percentages: Adams, 15%, Barnes, 35%, Cordas, 30%, and Davis, 20%. After Eden made his investment, what were the individual capital balances?

Explanation / Answer

Part 1

Under Bonus method, any difference between the new partner's investment and the book value of interest is distributed as bonus to old partners. If investment amount is larger than the book value of the interest, the bonus is allocated to the old partners. If the investment amount is less than the book value, the bonus is allocated to new partner.

   100,000

Eden's contribution 49000 (25% interest)

400,000*25% = 100,000 Capital Received

100,000 - 49,000 = 51,000 Bonus

Adam      26,000 Barnes      52,000 Cordas    117,000 Davis    156,000 Contribution by Edens      49,000 Total Capital    400,000

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