Practice 10- Ch 14 Partnership Formation and Operation

# Practice 10- Ch 14 Partnership Formation and Operation - Ch...

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1 Ch 14: Partnership Formation and Operation Four Practice Problems: 14-5, 14-16, 14-21 and 14-28. Solutions: Problem 1: 14 – 5. D The company’s implied value based on the new contribution is \$233,333 (\$70,000 ÷ 30%) which is less than the capital balances (\$280,000 in original capital plus \$70,000 to be invested). Thus, either the assets are overvalued or the new partner is also contributing goodwill. Because the problem indicates that goodwill is recognized, that figure must be computed. Note that the \$70,000 is going into the business and, thus, increases capital. Danville's investment = 30% (Original capital plus Danville's investment) \$70,000 + Goodwill = .30 (\$280,000 + \$70,000 + Goodwill) \$70,000 + Goodwill = \$105,000 + .30 Goodwill .70 Goodwill = \$35,000 Goodwill = \$50,000 Danville's investment (Capital) = \$70,000 + \$50,000 = \$120,000

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2 Problem 2: 14 -16. (10 Minutes) (Compute capital balances under both goodwill and bonus methods) a. Goodwill Method Implied value of partnership (\$80,000 ÷ 40%) . ................. \$200,000 Total capital after investment (\$70,000 + \$40,000 + \$80,000) Goodwill . ......................................................................... \$ 10,000 190,000 Goodwill to Hamlet (7/10) . ................................................ \$ 7,000 Goodwill to MacBeth (3/10) . ............................................. \$ 3,000 Hamlet, capital (original balance plus goodwill) . ............... \$ 77,000 MacBeth, capital (original balance plus goodwill) . ............ \$ 43,000 Lear, capital (payment) (40% of total capital) . .................. \$ 80,000 b. Bonus Method Total capital after investment (\$70,000 + 40,000 + \$80,000) \$190,000 Ownership portion—Lear . ................................................. Lear, capital .
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## This note was uploaded on 02/22/2012 for the course ACCT 501 taught by Professor Ma during the Spring '11 term at South Carolina.

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Practice 10- Ch 14 Partnership Formation and Operation - Ch...

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