Topic admission of new partner lo 4 an existing

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Chapter 16 / Exercise 3
Cengage Advantage Books: Foundations of the Legal Environment of Business
Jennings
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7. Topic: Admission of new partner LO 4 An existing partnership reports the following capital accounts: Eggert, capital $92,000Frank, capital 86,000Gigoly, capital 75,000The three partners share income as follows: Eggert, 40%; Frank, 30%; Gigoly, 30%. Hui buys a 15% interest in the partnership by paying $60,000 into the partnership. Using the recognition of implied goodwill approach, Frank’s capital balance after the addition of Hui to the partnership will be: a. $112,100 b. $130,100 c. $ 93,900 d. $104,000 ANS: a Rationale: Existing capital totals $92,000 + $86,000 + $75,000 = $253,000. Hui pays more than the initially computed share of capital, which is 15% x ($253,000 + $60,000) = $46,950. Using the goodwill approach, the total value of the partnership implied by Hui’s investment is $60,000/.15 = $400,000. Therefore total goodwill is $400,000 - $313,000 = $87,000. This goodwill is allocated between the existing partners according to their income-sharing percentages. The following entry records Hui’s admission: Cash 60,000Goodwill 87,000Eggert, capital 34,800 Frank, capital 26,100 Gigoly, capital 26,100 Hui, capital 60,000 Frank’s capital balance after the addition of Hui is $86,000 + $26,100 = $112,100
Cambridge Business Publishers, ©2010 Quiz Solutions 14-4Advanced Accounting, 1stEdition
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Cengage Advantage Books: Foundations of the Legal Environment of Business
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Chapter 16 / Exercise 3
Cengage Advantage Books: Foundations of the Legal Environment of Business
Jennings
Expert Verified
8. Topic: Retirement of partner LO 5 An existing partnership reports the following capital accounts: Jackson, capital $140,000 Kudrow, capital 230,000 Langley, capital 400,000 Jackson, Kudrow and Langley share income in a 20:50:30 ratio. Jackson decides to retire from the partnership, and the partners agree to pay Jackson $200,000. Using the bonus method, Kudrow’s capital balance after Jackson’s retirement is:

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