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

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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
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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...

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