Prob.

1
The Distance Plus partnership has the following capital balances at the beginning of the cu
Tiger (50%
Phil (20%)
Ernie (30%)

0.5
0.2
0.3

(profit/loss)

75,000
45,000
60,000

Each of the following questions should be viewed independently.

a) If Sergio invests
60,000
in cash in the business for
what journal entry is recorded? Assume that the bonus method is used.
Transaction
1

General Journal
Cash
Sergio,
Tiger,
Phil,
Ernie,

Debit
60,000

Capital
Capital
Capital
Capital

Credit

48,000
6,000
2,400
3,600

Tot. capital is
240,000
($75,000 + $45,000 + $60,000 + $60,000) after the
As Sergio's portion is 20 percent, this partner's capital balance would be
Because $60,000 was paid, a bonus of
12,000
is given to the three origin
Tiger$6,000 (50%), Phil$2,400 (20%), and Ernie$3,600 (30%).

b) If Sergio invests
Transaction
1

40,000
General Journal
Cash
Tiger,
Phil,
Ernie,
Sergio,

Capital
Capital
Capital
Capital

Debit
40,000

in cash in the business for a

Credit

2,000
800
1,200
44,000

Total capital is
220,000
($75,000 + $45,000 + $60,000 + $40,000) after the
As Sergio's portion is 20 percent, this partner's capital balance is
Because only $40,000 was paid, a bonus of
4,000
is taken from the three or
Tiger$2,000 (50%), Phil$800 (20%), and Ernie$1,200 (30%).

c) If Sergio invests

50,000

cash in the business for a

0.2

Transaction

General Journal

Debit

Goodwill
Tiger, Capital
Phil, Capital
Ernie, Capital

20,000

Cash
Sergio, Capital

50,000

Credit

record goodwill caused by

10,000
4,000
6,000

record inv.made by new p

50,000

Total capital is
230,000
($75,000 + $45,000 + $60,000 + $50,000) after the
based on the new investment is
250000
($50,000 20%). Consequently, goodw
allocation to the original partners based on their profit and loss ratio: Tiger$10,000 (50%

e beginning of the current year:

sh in the business for a

0.2

(20%) percent interest,

+ $60,000) after the new investment.

48000
en to the three original partners based on their profit and loss ratio:

0.2

(20%) interest, what journal entry is recorded? Assume that the bonus metho

+ $40,000) after the new investment.

44000
en from the three original partners based on their profit and loss ratio:

20 percent interest, what journal entry is recorded? Assume that the goodwill method is u

d goodwill caused by admission of new partner

d inv.made by new partner

+ $50,000) after the new investment. However, the implied value of the business
Consequently, goodwill of
20,000
must be recognized with the offsetting
Tiger$10,000 (50%), Phil$4,000 (20%), and Ernie$6,000 (30%).

at the bonus method is used.

oodwill method is used.

The partnership agreement of Jones, King, and Lane provides for the annual allocation of t

Jones, the managing partner, receives a bonus equal to

Each partner receives
0.11
percent interest on
Any residual profit or loss is divided equally.

The average capital investments for 2015 were as follows:

Jones
King
Lane
How much of the

Jones
King
Lane
Average Capital

Bonus (25%)
Interest (11% of average capital)
Remaining loss ($44,400)
Income assignment

64,000

140,000
280,000
420,000

partnership profit for 2015 should be ass

Income Assignment
$16,600
$16,000
$31,400

Jones
16,000
15,400
-14800
16,600

King
0
30,800
-14800
16,000

Lane
0
46,200
-14800
31,400

he annual allocation of the business's profit or loss in the following sequence:

0.25
percent of the businesss profit.
cent interest on their individual average capital investment.

for 2015 should be assigned to each partner?

Total
16,000
92,400
-44,400
64,000

profit
Jones bonus
remaining
interest assignments:
Jones
King
Lane
Remaining gain (loss) divided equally

64,000
16,000
48,000
-15,400
-30,800
-46,200
-44,400

The E.N.D. partnership has the following capital balances as of the end of the current year
Pineda
Adams
Fergie
Gomez
Total capital

160,000
140,000
130,000
120,000
550,000

a) Assume that the partners share profits and losses 3:3:2:2, respectively. Fergie retires an
based on the terms of the original partnership agreement. If the goodwill method is used,
Capital Balance
$191,500
$171,500
$141,000
Fergie

Pineda
Adams
Gomez

profit/loss
0.3
0.3
0.2
0.2

Fergie receives
21,000
this extra allocation indicates total goodwill of

more than her capital balance. Becaus

105000

20% of Goodwill = $21,000

0.20 G = $21,000
G = $105,000

goodwill = 21,000/0.20 =
OR

Capital Balances After Withdrawal

Original
Balance
Pineda
Adams
Fergie
Gomez
Total

160,000
140,000
130,000
120,000

Goodwill
31,500
31,500
21,000
21000

Withdrawal

-151,000

Final
Balance
191,500
171,500
0
141,000
504,000

b) Assume that the partners share profits and losses 4:3:2:1, respectively. Pineda retires a
based on the terms of the original partnership agreement.
If the bonus method is used, what is the capital balance of the remaining three partners?

A $145,000 bonus is paid to Pineda ($305,000 is paid rather than the $160,000 capital bal

according to their relative profit and loss ratio (3:2:1) or 3/6, 2/6, 1/6, respectively.
bonus paid to Pineda

145,000

bonus deduction:
partner
ratio
deduction
Adams (3/6 or 50%)
0.5
72500
Fergie (2/6 or 33.33%) 0.33333333 48333.3333
Gomez (1/6 or 0.167%) 0.16666667 24166.6667

orig. bal
140,000
130,000
120,000

nd of the current year:

ively. Fergie retires and is paid

151,000
dwill method is used, what is the capital balance of the remaining three partners?

pital balance. Because Fergie is assigned 20 percent of all profits and losses,
which must be split among all partners, with respect to their profit/loss ratio.

105000

ively. Pineda retires and is paid

305,000

ning three partners?

e $160,000 capital balance). This bonus is deducted from the three remaining partners

6, respectively.
Adams
Fergie
Gomez
final bal
67,500
81,667
95,833

$67,500
$81,667
$95,833