P15-13 Determining a New Partner's Investment Cost

a. $200,000 (No goodwill or bonus recorded)

Cash 200,000
Snider, Capital ($800,000 x 1/4) 200,000

.75 estimated total resulting capital $600,000

Estimated total resulting capital
($600,000 / .75) $800,000
Prior capital (600,000)
Cash contribution required from Snider $200,000

b. $210,000 (Goodwill of $30,000 to prior partners)

Goodwill 30,000
Der, Capital ($30,000 x .40) 12,000
Egan, Capital ($30,000 x .30) 9,000
Oprins, Capital ($30,000 x .30) 9,000

Cash 210,000
Snider, Capital ($840,000 x 1/4) 210,000

.75 estimated total resulting capital $630,000

Estimated total resulting capital
($630,000 / .75) $840,000
Prior capital after goodwill recognition (630,000)
Cash contribution required from Snider $210,000
c. $232,000 (Bonus of $24,000 to be paid to Snider)

Cash 232,000
Der, Capital ($24,000 x .40) 9,600
Egan, Capital ($24,000 x .30) 7,200
Oprins, Capital ($24,000 x .30) 7,200
Snider, Capital ($832,000 x 1/4) 208,000

.75 estimated total resulting capital

($600,000 + $24,000 bonus) $624,000
Estimated total resulting capital
($624,000 / .75) $832,000
Prior capital before bonus from Snider (600,000)
Cash contribution required from Snider $232,000
P15-13 (continued)

d. $190,000 (New partner given $10,000 of goodwill)

Cash 190,000
Goodwill 10,000
Snider, Capital ($800,000 x 1/4) 200,000

.75 estimated total resulting capital $600,000

Estimated total resulting capital
($600,000 / .75) $800,000
Prior capital (600,000)
Capital credit to Snider $200,000
Goodwill to Snider (10,000)
Cash contribution required from Snider $190,000

e. $220,000 (Other assets increased by $20,000 and goodwill

of $40,000 allocated to prior partners)

Other Assets 20,000

Goodwill 40,000
Der, Capital ($60,000 x .40) 24,000
Egan, Capital ($60,000 x .30) 18,000
Oprins, Capital ($60,000 x .30) 18,000

Cash 220,000
Snider, Capital ($880,000 x 1/4) 220,000
.75 estimated total resulting capital
($600,000 + $60,000 revaluation
and goodwill) $660,000
Estimated total resulting capital
($660,000 / .75) $880,000
Prior capital after recognition of asset
revaluation and goodwill to prior partners (660,000)
Cash contribution required from Snider $220,000
P15-13 (continued)

f. $220,000 (No goodwill; total resulting capital is $820,000)

Cash 220,000
Der, Capital ($15,000 x .40) 6,000
Egan, Capital ($15,000 x .30) 4,500
Oprins, Capital ($15,000 x .30) 4,500
Snider, Capital ($820,000 x 1/4) 205,000

Specified total resulting capital $820,000

Prior capital (600,000)
Cash contribution required from Snider $220,000

Investment in partnership $220,000

New partner's proportionate book value
[($600,000 + $220,000 ) x .25] (205,000)
Difference (investment > book value) $ 15,000

Method: Bonus of $15,000 to prior partners

g. $140,000 (Other assets decreased $20,000;

bonus of $40,000 to new partner)

Der, Capital ($20,000 x .40) 8,000

Egan, Capital ($20,000 x .30) 6,000
Oprins, Capital ($20,000 x .30) 6,000
Other Assets 20,000
Cash 140,000
Der, Capital ($40,000 x .40) 16,000
Egan, Capital ($40,000 x .30) 12,000
Oprins, Capital ($40,000 x .30) 12,000
Snider, Capital ($720,000 x 1/4) 180,000

.75 estimated total resulting capital

after asset write-downs and bonus to
new partner ($600,000 - $60,000) $540,000
Estimated total resulting capital
($540,000 / .75) $720,000
Prior capital after asset write-downs
and bonus to new partner (540,000)
Capital credit to Snider $180,000
Bonus to Snider (40,000)
Cash contribution required from Snider $140,000
P15-15 Withdrawal of a Partner under Various Circumstances

a. Spade's capital interest was acquired in a personal transaction with Jack.

Spade, Capital 120,000

Jack, Capital 120,000

b. Amount paid by Jack for Spade's capital

interest $150,000
Recorded amount of Spade's capital interest (120,000)
Goodwill attributable to Spade $ 30,000
Spade's share of profits/losses 50%
Implied value of the partnership's goodwill
($30,000 / .50)__allocated to all partners in
the ratio 20:30:50 $60,000

Goodwill 60,000
Ace, Capital (.20 x $60,000) 12,000
Jack, Capital (.30 x $60,000) 18,000
Spade, Capital (.50 x $60,000) 30,000

Spade, Capital($120,000 + 30,000) 150,000

Jack, Capital 150,000

c. The partnership paid a bonus to Spade upon retirement. Total capital of the
partnership after Spade's retirement was $290,000.

Amount paid to Spade upon retirement $180,000

Spade's capital credit (120,000)
Bonus paid to Spade__allocated to
Ace and Jack in the ratio 40:60 $ 60,000

Spade, Capital 120,000

Ace, Capital (.40 x $60,000) 24,000
Jack, Capital (.60 x $60,000) 36,000
Cash 180,000

Capital balances after retirement:

Ace, Capital ($150,000 - $24,000) $136,000
Jack, Capital ($200,000 - $36,000) 154,000
Total capital $290,000
P15-15 (continued)

d. Spade was given cash and land. Capital of the partnership after Spade's
retirement was $310,000.

Ace Jack Spade

Profit ratio 20% 30% 50%
Capital balances before
Spade's retirement $150,000 $200,000 $120,000
Gain recognized on transfer
of land to Spade
($120,000 minus $100,000) 4,000 6,000 10,000
Capital balances after
allocation of gain $154,000 $206,000 $130,000

Amount paid to Spade ($60,000 cash and $120,000 land) $180,000

Spade's capital interest__see above schedule (130,000)
Bonus to Spade allocated between Ace and Jack in the
ratio 40:60 $ 50,000

Land 20,000
Ace, Capital (.20 x $20,000) 4,000
Jack, Capital (.30 x $20,000) 6,000
Spade, Capital (.50 x $20,000) 10,000

Spade, Capital 130,000

Ace, Capital (.40 x $50,000) 20,000
Jack, Capital (.60 x $50,000) 30,000
Cash 60,000
Land 120,000

Capital balances after Spade's retirement:

Ace, Capital ($154,000 - $20,000) $134,000
Jack, Capital ($206,000 - $30,000) 176,000
Total capital $310,000

e. Spade was given $150,000 upon retirement, and the goodwill

attributable to Spade was recognized.

Amount paid to Spade $150,000

Spade's capital interest (120,000)
Goodwill attributable to Spade $ 30,000

Spade, Capital 120,000

Goodwill 30,000
Cash 150,000
P15-15 (continued)

f. Spade was given $150,000 upon retirement, and goodwill applicable to the entire
business was recorded.

Amount paid to Spade $150,000

Spade's capital interest (120,000)
Goodwill attributable to Spade $ 30,000
Spade's share of profits/losses 50%
Goodwill attributable to the entire partnership
$30,000/.50__allocated to all the partners in
the ratio 20:30:50 $60,000

Goodwill 60,000
Ace, Capital (.20 x $60,000) 12,000
Jack, Capital (.30 x $60,000) 18,000
Spade, Capital (.50 x $60,000) 30,000

Spade, Capital 150,000

Cash 150,000

g. Spade was given land and a note payable upon retirement. Capital
of the partnership after Spade's retirement was $360,000.

Ace Jack Spade

Profit ratio 20% 30% 50%
Capital balances before Spade's
retirement $150,000 $200,000 $120,000
Allocation of gain on transfer of
land ($100,000 - $60,000 = $40,000) 8,000 12,000 20,000
Capital balances before Spade's
retirement, adjusted for gain $158,000 $212,000 $140,000
Amount paid to Spade
($100,000 of land + $50,000 note) $150,000
Spade's capital interest__adjusted (140,000)
Bonus given to Spade__allocated between
Ace and Jack in the ratio 40:60 $ 10,000

Land 40,000
Ace, Capital (.20 x $40,000) 8,000
Jack, Capital (.30 x $40,000) 12,000
Spade, Capital (.50 x $40,000) 20,000

Spade, capital 140,000

Ace, Capital (.40 x $10,000) 4,000
Jack, Capital (.60 x $10,000) 6,000
Land 100,000
Note Payable 50,000
 P15-15 (continued)

Capital balances after Spade's retirement:

Ace, Capital ($158,000 - $4,000) $154,000
Jack, Capital ($212,000 - $6,000) 206,000
Total capital
P15-18 Partnership Formation, Operation, and Changes in Ownership

a. Entries to record the formation of the partnership and the events that occurred
during 20X7:

Cash 110,000
Inventory 80,000
Land 130,000
Equipment 100,000
Mortgage payable 50,000
Installment Note Payable 20,000
Jordan, Capital ($60,000
+ $80,000 + $100,000 - $20,000) 220,000
O’Neal, Capital
($50,000 + $130,000 - $50,000) 130,000

(1) Inventory 30,000

Cash 24,000
Accounts Payable 6,000

(2) Mortgage Payable 5,000

Interest Expense 2,000
Cash 7,000
(3) Installment Note Payable 3,500
Interest Expense 2,000
Cash 5,500

(4) Accounts Receivable 21,000

Cash 134,000
Sales 155,000

(5) Selling and General Expenses 34,000

Cash 27,800
Accrued Expenses Payable 6,200

(6) Depreciation Expense 6,000

Accumulated Depreciation 6,000

(7) Jordan, Drawing ($200 x 52) 10,400

O’Neal, Drawing 10,400
Cash 20,800

(8) Sales 155,000

Income Summary 155,000

(9) Cost of Goods Sold 90,000

Inventory 90,000
$90,000 = $80,000 beginning inventory
+ 30,000 purchases
- 20,000 ending inventory
P15-18 (continued)

Income Summary 134,000

Cost of Goods Sold 90,000
Selling and General Expenses 34,000
Depreciation Expense 6,000
Interest Expense 4,000

Income Summary 21,000

Jordan, Capital 10,500
O’Neal, Capital 10,500

Jordan, Capital 10,400

O’Neal, Capital 10,400
Jordan, Drawing 10,400
O’Neal, Drawing 10,400

Schedule to allocate partnership net income for 20X7:

Jordan O’Neal Total

Profit percentage 60% 40% 100%
Beginning capital balance $220,000 $130,000 $350,000
Net income ($155,000 revenue
- $134,000 expenses) $ 21,000
Interest on beginning capital
balances (3%) $ 6,600 $ 3,900 (10,500)
$ 10,500
Salaries 12,000 12,000 (24,000)
$(13,500)
Residual deficit (8,100) (5,400) 13,500
Total $10,500 $10,500 $ -0-

b.
Jordan__O’Neal Partnership
Income Statement
For the Year Ended December 31, 20X7

Sales $155,000
Less cost of goods sold:
Inventory, January 1 $ 80,000
Purchases 30,000
Goods available for sale $110,000
Less inventory, December 31 ( 20,000) (90,000)
Gross profit $ 65,000
Less: Selling and general expenses $34,000
Depreciation expense 6,000 (40,000)
Operating income $ 25,000
Nonoperating expense__interest (4,000)
Net income $ 21,000

P15-18 (continued)

c.
Jordan__O’Neal Partnership
Balance Sheet
At December 31, 20X7

Assets
Cash $158,900
Accounts Receivable 21,000
Inventory 20,000
Land 130,000
Equipment(net) 94,000
Total Assets $423,900

Liabilities and Capital

Liabilities:
Accounts Payable $ 6,000
Accrued Expenses Payable 6,200
Installment Note Payable 16,500
Mortgage Payable 45,000
Total Liabilities $ 73,700
Capital:
Jordan, Capital $220,100
O’Neal, Capital 130,100
Total Capital 350,200
Total Liabilities and Capital $423,900

d. Hill's investment into the partnership $99,800

Prior partners' capital 350,200
Total capital of the new partnership $450,000
Hill's capital credit (.20 x $450,000) $ 90,000
Bonus allocated to Jordan and O’Neal
in the ratio 60:40 $ 9,800

January 1, 20X8 journal entry:

Cash 99,800
Jordan, Capital (.60 x $9,800) 5,880
O’Neal, Capital (.40 x $9,800) 3,920
Hill, Capital 90,000