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1
The Distance Plus partnership has the following capital balances at the beginning of the curre
Tiger (50%
Phil (20%)
Ernie (30%)
0.5
0.2
0.3
(profit/loss)
75,000
45,000
60,000
General Journal
Cash
Sergio,
Tiger,
Phil,
Ernie,
Debit
60,000
Capital
Capital
Capital
Capital
Credit
48,000
6,000
2,400
3,600
Tot. capital is
240,000
($75,000 + $45,000 + $60,000 + $60,000) after the ne
As Sergio's portion is 20 percent, this partner's capital balance would be
Because $60,000 was paid, a bonus of
12,000
is given to the three original
Tiger$6,000 (50%), Phil$2,400 (20%), and Ernie$3,600 (30%).
b) If Sergio invests
Transaction
1
40,000
General Journal
Cash
Tiger,
Phil,
Ernie,
Sergio,
Capital
Capital
Capital
Capital
Debit
40,000
2,000
800
1,200
44,000
Total capital is
220,000
($75,000 + $45,000 + $60,000 + $40,000) after the ne
As Sergio's portion is 20 percent, this partner's capital balance is
Because only $40,000 was paid, a bonus of
4,000
is taken from the three origin
Tiger$2,000 (50%), Phil$800 (20%), and Ernie$1,200 (30%).
c) If Sergio invests
50,000
Transaction
General Journal
Debit
Goodwill
Tiger, Capital
Phil, Capital
Ernie, Capital
20,000
Cash
Sergio, Capital
50,000
0.2
Credit
Total capital is
230,000
($75,000 + $45,000 + $60,000 + $50,000) after the ne
based on the new investment is
250000
($50,000 20%). Consequently, goodwill
allocation to the original partners based on their profit and loss ratio: Tiger$10,000 (50%),
0.2
0.2
(20%) interest, what journal entry is recorded? Assume that the bonus method
20 percent interest, what journal entry is recorded? Assume that the goodwill method is use
+ $50,000) after the new investment. However, the implied value of the business
Consequently, goodwill of
20,000
must be recognized with the offsetting
Tiger$10,000 (50%), Phil$4,000 (20%), and Ernie$6,000 (30%).
The partnership agreement of Jones, King, and Lane provides for the annual allocation of the
Jones
King
Lane
Average Capital
Bonus (25%)
Interest (11% of average capital)
Remaining loss ($44,400)
Income assignment
64,000
140,000
280,000
420,000
Income Assignment
$16,600
$16,000
$31,400
Jones
16,000
15,400
-14800
16,600
King
0
30,800
-14800
16,000
Lane
0
46,200
-14800
31,400
0.25
percent of the businesss profit.
cent interest on their individual average capital investment.
Total
16,000
92,400
-44,400
64,000
profit
Jones bonus
remaining
interest assignments:
Jones
King
Lane
Remaining gain (loss) divided equally
64,000
16,000
48,000
-15,400
-30,800
-46,200
-44,400
The E.N.D. partnership has the following capital balances as of the end of the current year:
Pineda
Adams
Fergie
Gomez
Total capital
160,000
140,000
130,000
120,000
550,000
a) Assume that the partners share profits and losses 3:3:2:2, respectively. Fergie retires and i
based on the terms of the original partnership agreement. If the goodwill method is used, wh
Capital Balance
$191,500
$171,500
$141,000
Fergie
Pineda
Adams
Gomez
profit/loss
0.3
0.3
0.2
0.2
Fergie receives
21,000
this extra allocation indicates total goodwill of
goodwill = 21,000/0.20 =
OR
160,000
140,000
130,000
120,000
Goodwill
31,500
31,500
21,000
21000
Withdrawal
-151,000
Final
Balance
191,500
171,500
0
141,000
504,000
b) Assume that the partners share profits and losses 4:3:2:1, respectively. Pineda retires and
based on the terms of the original partnership agreement.
If the bonus method is used, what is the capital balance of the remaining three partners?
A $145,000 bonus is paid to Pineda ($305,000 is paid rather than the $160,000 capital balan
according to their relative profit and loss ratio (3:2:1) or 3/6, 2/6, 1/6, respectively.
bonus paid to Pineda
145,000
bonus deduction:
partner
ratio
deduction
Adams (3/6 or 50%)
0.5
72500
Fergie (2/6 or 33.33%) 0.33333333 48333.3333
Gomez (1/6 or 0.167%) 0.16666667 24166.6667
orig. bal
140,000
130,000
120,000
pital balance. Because Fergie is assigned 20 percent of all profits and losses,
which must be split among all partners, with respect to their profit/loss ratio.
105000
305,000
e $160,000 capital balance). This bonus is deducted from the three remaining partners
6, respectively.
Adams
Fergie
Gomez
final bal
67,500
81,667
95,833
$67,500
$81,667
$95,833