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Ch14 HW

# Ch14 HW - 16(15 Minutes(Prepare journal entries to record...

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16.(15 Minutes) (Prepare journal entries to record admission of new partner under both the goodwill and the bonus methods) Part a. Total capital is \$300,000 (\$85,000 + \$60,000 + \$55,000 + \$100,000) after the new investment. As Sergio's portion is 25 percent, this partner's capital balance would be \$75,000. Since \$100,000 was paid, a bonus of \$25,000 is given to the three original partners based on their profit and loss ratio: Tiger—\$12,500 (50%), Phil—\$7,500 (30%), and Ernie—\$5,000 (20%). Cash . ........................................................................... 100,000 Sergio, Capital . ...................................................... 75,000 Tiger, Capital . ........................................................ 12,500 Phil, Capital . ........................................................... 7,500 Ernie, Capital . ........................................................ 5,000 Part b. Total capital is \$260,000 (\$85,000 + \$60,000 + \$55,000 + \$60,000) after the new investment. As Sergio's portion is to be 25 percent, this partner's capital balance would be \$65,000. Because only \$60,000 was paid, a bonus of \$5,000 is taken from the three original partners based on their profit and loss ratio: Tiger—\$2,500 (50%), Phil—\$1,500 (30%), and Ernie—\$1,000 (20%). Cash . ........................................................................... 60,000 Tiger, Capital . .............................................................. 2,500 Phil, Capital . ................................................................ 1,500 Ernie, Capital . .............................................................. 1,000 Sergio, Capital . ...................................................... 65,000 Part c. Total capital is \$272,000 (\$85,000 + \$60,000 + \$55,000 + \$72,000) after the new investment. However, the implied value of the business based on the new investment is \$288,000 (\$72,000/25%). Consequently, goodwill of \$16,000 must be recognized with the offsetting allocation to the original partners based on their profit and loss ratio: Tiger—\$8,000 (50%), Phil— \$4,800 (30%), and Ernie— \$3,200 (20%). Goodwill ..................................................................... 16,000 Tiger, Capital . ........................................................ 8,000 Phil, Capital . ........................................................... 4,800

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Ernie, Capital . ........................................................ 3,200 Cash . ............................................................................ 72,000 Sergio, Capital . ...................................................... 72,000
17. (16 Minutes) (Determine capital balances after admission of new partner using both goodwill and bonus methods) Part a. Total capital is \$490,000 (\$200,000 + \$120,000 + \$90,000 + \$80,000)

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Ch14 HW - 16(15 Minutes(Prepare journal entries to record...

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