Business, 18.11.2020 16:50 3steves

The Distance Plus partnership has the following capital balances at the beginning of the current year: Tiger (40% of profits and losses) $ 150,000 Phil (30%) 120,000 Ernie (30%) 135,000 Each of the following questions should be viewed independently. Required:
a. If Sergio invests $190,000 in cash in the business for a 20 percent interest, what journal entry is recorded?
b. If Sergio invests $100,000 in cash in the business for a 20 percent interest, what journal entry is recorded? Assume that the bonus method is used.
c. If Sergio invests $102,000 in cash in the business for a 20 percent interest, what journal entry is recorded? Assume that the goodwill is used.

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Answer from: asianpatriot7375

A. Total Capital After Investment = 150000+120000+135000+190000 = 595000

Sergio's Share = 595000*20% = 119000

Bonus Distributed to Existing Partners = 190000 - 119000 = 71,000

Journal Entry

Particulars Debit Credit

Cash 190,000

Sergio, Capital 119,000

Tiger, Capital (71,000*40%) 28,400

Phil, Capital (71,000*30%) 21,300

Ernie, Capital (71,000*30%) 21,300

B. Total Capital After Investment = 150000+120000+135000+100000 = 505000

Sergio's Share = 505000*20% = 101000

Bonus Taken from Existing Partners = 101000 - 100000 = 100

Journal Entry

Particulars Debit Credit

Cash 100000

Tiger, Capital (1000*40%) 400

Phil, Capital (1000*30%) 300

Ernie, Capital (1000*30%) 300

Sergio, Capital 101000

C. Total Capital After Investment = 150000+120000+135000+102000 = 507000

Implied Value of Business = 102000/20% = 510000

Goodwill = 510000 - 507000 = 3000

Journal Entry

Particulars Debit Credit

Goodwill 3000

Tiger, Capital (3000*40%) 1200

Phil, Capital (3000*30%) 900

Ernie, Capital (3000*30%) 900

Journal Entry

Particulars Debit Credit

Cash 102000

Sergio, Capital 102000

Answer from: Quest

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Answer from: Quest

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