Loose Leaf for Fundamentals of Advanced Accounting
Loose Leaf for Fundamentals of Advanced Accounting
7th Edition
ISBN: 9781260151879
Author: Hoyle, Joe Ben; Schaefer, Thomas; Doupnik, Timothy
Publisher: McGraw-Hill Education
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Question
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Chapter 9, Problem 30P

a.

To determine

Prepare the journal entry or entries to be recorded by the partnership for the given transaction.

a.

Expert Solution
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Explanation of Solution

Person P decides to sell half of its share to person DA with the consent of all other partners for $50,000 in cash.

Calculate the amount of half of share of person P

HalfshareofpersonP=$70,000×50%=$35,000

Person P is receiving $50,000 hence; it will not affect the company’s capital.

Journal entry will be

DateAccounts and ExplanationPost Ref.Debit ($)Credit ($)
     
 Person P's Capital  $   35,000 
 Person DA's Capital   $   35,000
     
 (To record the sale of half share of person P)   
     

Table: (1)

b.

To determine

Prepare the journal entry or entries to be recorded by the partnership for the given transaction.

b.

Expert Solution
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Explanation of Solution

Three partners sell their 10 % partnership interest to the person DA for $25,000 cash.

Journal entry can be

DateAccounts and ExplanationPost Ref.Debit ($)Credit ($)
     
 Goodwill  $   50,000 
 Person AT's Capital   $   25,000
 Person P's Capital   $   15,000
 Person AR's Capital   $   10,000
     
 (To record the goodwill)   
     
 Person AT's Capital  $   10,500 
 Person P's Capital  $     8,500 
 Person AR's Capital  $     6,000 
 Person DA's Capital   $   25,000
     
 (To record the capital taken from other partners by person DA)   
     

Table: (2)

Working note

Calculate the implied value of the business

Impliedvalue=$25,00010%=$25,000×10010=$2,500,00010=$250,000

Calculate the total current capital of the business

Totalcurrentcapital=$80,000+$70,000+$50,000=$200,000

Calculate goodwill

Goodwill=ImpliedvalueTotalcapital=$250,000$200,000=$50,000

Calculate distribution of goodwill

GoodwillsharetopersonAT=$50,000×50%=$25,000GoodwillsharetopersonP=$50,000×30%=$15,000

Now, goodwill share for other partners

GoodwillsharetopersonAR=$50,000×20%=$10,000

c.

To determine

Prepare the journal entry or entries to be recorded by the partnership for the given transaction.

c.

Expert Solution
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Explanation of Solution

Person DA is allowed to join the partnership with 10 % ownership interest by paying cash $30,000 directly to the business. Hence, the total capital for the business is $230,000.

The person DA requires 10% interest of the total capital. Bonus method is followed.

Journal entry can be

DateAccounts and ExplanationPost Ref.Debit ($)Credit ($)
     
 Cash  $   30,000 
 Person AT's Capital   $     3,500
 Person P's Capital   $     2,100
 Person AR's Capital   $     1,400
 Person DA's Capital   $   23,000
     
 (To record the admission of person DA)   
     

Table: (3)

Working note

Calculate person DA share in total capital

PersonDAshare=$230,000×10%=$23,000

Person DA has paid $30,000 hence, $7,000 excess is the bonus which is distributed to other partners in their profit sharing ratio

Calculate distribution of bonus to other partners

BonusshareofpersonAT=$7,000×50%=$3,500BonusshareofpersonP=$7,000×30%=$2,100

Now, bonus to other partners

BonusshareofpersonAR=$7,000×20%=$1,400

d.

To determine

Prepare the journal entry or entries to be recorded by the partnership for the given transaction.

d.

Expert Solution
Check Mark

Explanation of Solution

Person DA is allowed to join the partnership with 10 % ownership interest by paying cash $30,000 directly to the business. Hence, the total capital for the business is $230,000.

The person DA requires 10% interest of the total capital. Goodwill method is followed.

Journal entry can be

DateAccounts and ExplanationPost Ref.Debit ($)Credit ($)
     
 Cash  $   30,000 
 Goodwill  $   70,000 
 Person AT's Capital   $   35,000
 Person P's Capital   $   21,000
 Person AR's Capital   $   14,000
 Person DA's Capital   $   30,000
     
 (To record the admission of new partner through goodwill method)   
     

Table: (4)

Working note

Calculate the implied value of the business

Impliedvalue=$30,00010%=$30,000×10010=$3,000,00010=$300,000

Total capital of the business is $230,000

Calculate goodwill

Goodwill=ImpliedvalueTotalcapital=$300,000$230,000=$70,000

Calculate distribution to other partners

GoodwillsharetopersonAT=$70,000×50%=$35,000GoodwillsharetopersonP=$70,000×30%=$21,000

Now, goodwill share to other partners

GoodwillsharetopersonAR=$70,000×20%=$14,000

e.

To determine

Prepare the journal entry or entries to be recorded by the partnership for the given transaction.

e.

Expert Solution
Check Mark

Explanation of Solution

Person DA is joining new partnership with the cash payment of $12,222 and goodwill method is followed.

Journal entry can be

DateAccounts and ExplanationPost Ref.Debit ($)Credit ($)
     
 Cash  $   12,222 
 Goodwill  $   10,000 
 Person DA's Capital   $   22,222
     
 (To record the admission of partner DA through goodwill method)   
     

Table: (5)

Working note

Calculate total value of business

Impliedvalue=$12,22210%=$12,222×10010=$12,2220010=$122,220

Total capital of the business is $212,222. The new partner brings goodwill along with him.

Calculate goodwill

$12,222+Goodwill=10%×(Originalcapital+$12,222+Goodwill)$12,222+Goodwill=10%×($212,222+Goodwill)$12,222+Goodwill=$21,222+0.10GoodwillGoodwill0.10Goodwill=$21,222$12,222

Now, further calculation of goodwill

0.9Goodwill=$9,000Goodwill=$9,0000.9Goodwill=$10,000

f.

To determine

Prepare the journal entry or entries to be recorded by the partnership for the given transaction.

f.

Expert Solution
Check Mark

Explanation of Solution

The current fair value of the business is $280,000 and the total capital of three partners is $200,000. This means that $80,000 in the business is the goodwill of the business. The goodwill is distributed among the partners in their profit sharing ratios. Retiring partner is paid cash after recording the goodwill.

Journal entry can be

DateAccounts and ExplanationPost Ref.Debit ($)Credit ($)
     
 Goodwill  $   80,000 
 Person AT's Capital   $   40,000
 Person P's Capital   $   24,000
 Person AR's Capital   $   16,000
     
 (To record the goodwill of the business)   
     
 Person AR's Capital  $   66,000 
 Cash   $   66,000
     
 (To record cash paid to the retiring partner)   
     

Table: (6)

Working note

Calculate distribution of goodwill to partners

GoodwillsharetopersonAT=$80,000×50%=$40,000GoodwillsharetopersonP=$80,000×30%=$24,000

Now, goodwill to other partners

GoodwillsharetopersonAR=$80,000×20%=$16,000

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