WORKING PAPERS F/ FUND ACCOUNTING
WORKING PAPERS F/ FUND ACCOUNTING
22nd Edition
ISBN: 9781308868394
Author: Wild
Publisher: MCG CUSTOM
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Chapter 12, Problem 4APSA
To determine

Concept Introduction:

Admission and Withdrawal of Partner

When a new partner is admitted to the existing partnership then it is called a admission of a partner. Partnership is reconstituted after admission of the partner with new agreement.

When a partner leaves a partnership firm then it is called withdrawal of the partner, He may be permitted to withdraw assets either equal to or less than his share from the firm.

Requirement 1-

To prepare:

Journal entries to record Benson’s withdrawal.

Expert Solution
Check Mark

Answer to Problem 4APSA

Solution:

S. No. Accounts titles and Description Debit ($) Credit ($)
1 B's Capital 160,000  
  N's Capital   160,000
  (To record the sale of Interest of B to N)    
       
2 B's Capital 138,000  
  S's Capital   138,000
  (To record the B's Interest to S)    
       
3 B's Capital 138,000  
  Cash   138,000
  (To record withdrawal of B)    
       
4 B's Capital 138,000  
  M's Capital 28,500  
  L's Capital 47,500  
  Cash   214,000
  (To record withdrawal of B with bonus)    
       
5 B's Capital 138,000  
  Accumulated Depreciation- Equipment 23,200  
  M's Capital   22,950
  L's Capital   38,250
  Equipment   70,000
  Cash   30,000
  (To record the withdrawal of B with bonus to old partners)    

Explanation of Solution

Entry 1- Benson sells her interest to North worth $160,000.

In this entry, Benson had sold her interest so her capital account will be debited with $160,000. And North is new partner in the partnership firm so his capital will be added in partnership, thus, his capital account will be credited.

Entry 2 Benson gives her interest to son-in law Schmidt.

In this entry, Benson gives her interest so her capital will be debited with $138,000. And Schmidt is new partner in the partnership firm so his capital will be added in partnership, thus, his capital account will be credited.

Entry 3 Benson is paid in cash.

In this entry, Benson is paid her share in cash so her capital will be debited with $138,000 and cash will be credited.

Entry 4 Benson is paid in cash with bonus.

In this entry Benson is paid her share along with bonus in cash. So in this case her share amount i.e. $138,000 will be debited with her capital account and remaining amount i.e. $78,000 ($216,000-$138,000) will be taken from other partner’s capital in their profit sharing ratio.

Amount to be withdrawal from other partner’s capital is calculated as follows-

M’s capital-

Ms Capital= ($214,000  $138,000) × 38 Ms Capital=$76,000 × 38 Ms Capital=$28,500

L’s Capital-

Ls Capital= ($214,000  $138,000) × 58 Ls Capital=$76,000 × 58 Ls Capital=$47,500

Entry 5 Benson is paid in cash with bonus to other partners.

In this entry Benson is paid her share in cash along with equipment. So in this case her share amount i.e. $138,000 will be debited with her capital account and equipment will also be debited.

Given:

B’s Capital Account - $138,000

Accumulated Depreciation Equipment - $23,200

Equipment - $70,000

Cash - $30,000

Bonus to other partners is calculated as follows-

M’s Capital-

Ms Capital= [$138,000-($70,000$23,200+$30,000)× 38 Ms Capital=$61,200 × 38 Ms Capital=$22,950

L’s Capital-

Ls Capital= [$138,000-($70,000$23,200+$30,000)× 58 Ls Capital=$61,200 × 58 Ls Capital=$38,250

To determine

Requirement 2-

To prepare:

Journal Entry to record Rhode’s Entry

Expert Solution
Check Mark

Answer to Problem 4APSA

Solution:

S. No. Accounts titles and Description Debit ($) Credit ($)
1 Cash 200,000  
  R's Capital   200,000
  (To record admission of partner R)    
       
2 Cash 145,000  
  M's Capital 12,375  
  B's Capital 8,250  
  L's Capital 20,625  
  R Capital   186,250
  (To record R's admission and Bonus)    
       
3 Cash 262,000  
  M's Capital   13,950
  B's Capital   9,300
  L's Capital   23,250
  R Capital   215,500
  (To record R's admission and Bonus to old)    

Explanation of Solution

Entry 1- Rhode invests $200,000.

Rhode is new partner in the partnership firm so his capital will be added in partnership, thus, his capital account will be credited, and cash will be debited.

Total amount of capital = Ms Capital + Bs Capital + Ls CapitalTotal amount of capital = $168,000 + $138,000 + $294,000Total amount of capital = $600,000

New capital after admission of Rhode = $600,000 + $200,000New capital after admission of Rhode = $800,000Rhodes Share = $800,000 × 25% Rhodes Share = $200,000

Entry 2- Rhode invests $145,000.

Rs share of capital = ($600,000 + $145,000) ×25%Rs share of capital =$745,000×25%Rs share of capital =$186,250

Rhode is new partner in the partnership firm so his capital will be added in partnership, thus, his capital account will be credited with $186,250.

Remaining amount is bonus part which will be taken from old partners in their profit sharing ratio.

Remaining amount = ($186,250 - $145,000) = $41,250

Calculation of bonus from other partners-

M Capital=$41,250×310= $12,375B Capital=$41,250×210= $8,250 L Capital=$41,250×510= $20,625

Entry 3- Rhode invests $262,000.

Rs share of capital =($600,000 + $262,000) ×25%Rs share of capital =$862,000×25%Rs share of capital =$215,500

Rhode is new partner in the partnership firm so his capital will be added in partnership, thus, his capital account will be credited with $215,500.

Remaining amount is bonus part which will be given to old partners in their profit sharing ratio.

Remaining amount = ($262,000 - $215,500) = $46,500

Calculation of bonus to other partners-

M Capital=$46,500×310= $13,950B Capital=$46,500×210= $9,300 L Capital=$46,500×510= $23,250

Conclusion

Thus, other partners receive Bonus.

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