Problem 1

Cesar and Damon share partnership profits and losses at 60% and 40%,
respectively. The partners agree to admit Egan into the partnership for a 50%
interest in capital and earnings. Capital accounts immediately before the
admission of Egan are:

Cesar (60%) $ 300,000

Damon (40%) 300,000
Total $ 600,000

Required:

1. Prepare the journal entry(s) for the admission of Egan to the partnership
assuming Egan invested $400,000 for the ownership interest. Egan paid
the money directly to Cesar and to Damon for 50% of each of their
respective capital interests. The partnership records goodwill.

2. Prepare the journal entry(s) for the admission of Egan to the partnership
assuming Egan invested $500,000 for the ownership interest. Egan paid
the money to the partnership for a 50% interest in capital and earnings.
The partnership records goodwill.

3. Prepare the journal entry(s) for the admission of Egan to the partnership
assuming Egan invested $700,000 for the ownership interest. Egan paid
the money to the partnership for a 50% interest in capital and earnings.
The partnership records goodwill.

Exercise 2

A summary balance sheet for the partnership of Ivory, Jacoby and Kato on
December 31, 2006 is shown below. Partners Ivory, Jacoby and Kato allocate
profit and loss in their respective ratios of 9:6:10.

Assets
Cash $ 50,000
Inventory 75,000
Marketable securities 120,000
Land 80,000
Building-net 400,000
Total assets $ 725,000

Equities
Ivory, capital $ 425,000
Jacoby, capital 225,000
Kato, capital 75,000
Total equities $ 725,000

The partners agree to admit Lange for a one-tenth interest. The fair market
value for partnership land is $180,000, and the fair market value of the
inventory is $150,000.
Required:

1. Record the entry to revalue the partnership assets prior to the admission
of Lange.

2. Calculate how much Lange will have to invest to acquire a 10% interest.

3. If Lange paid $200,000 to the partnership in exchange for a 10% interest,

what would be the bonus that is allocated to each partner's capital
account?
Problem 10

A summary balance sheet for the Almond, Brandt, and Clack partnership
on December 31, 2006 is shown below. Partners Almond, Brandt, and Clack
allocate profit and loss in their respective ratios of 2:1:1. The
partnership agreed to pay partner Brandt $135,000 for his partnership
interest upon his retirement from the partnership on January 1, 2007.
The partnership financials on January 1, 2007 are:

Assets
Cash $ 75,000
Inventory 85,000
Marketable securities 60,000
Land 90,000
Building-net 150,000
Total assets $ 420,000

Equities
Almond, capital $ 210,000
Brandt, capital 105,000
Clack, capital 105,000
Total equities $ 420,000

Required:

Prepare the journal entry to reflect Brandt’s retirement from the

partnership:
1. Assuming a bonus to Brandt.
2. Assuming a revaluation of total partnership capital based on excess
payment.
3. Assuming goodwill to excess payment is recorded.