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    E15-7 Admission

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    Borussian Rama
    The document discusses several scenarios for admitting a new partner, Gerry, to an existing partnership between Pam and John. In Scenario A, Gerry invests $50,000 and goodwill of $40,000 is recorded, allocated to Pam and John based on their ownership stakes. In Scenario B, Gerry invests $50,000 and the total capital is set at $210,000, resulting in a $8,000 bonus to Pam and John. The other scenarios vary the investment amount and whether goodwill is recorded or bonuses are distributed.

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    E15-7 Admission

    Uploaded by

    Borussian Rama
    162 views12 pages
    The document discusses several scenarios for admitting a new partner, Gerry, to an existing partnership between Pam and John. In Scenario A, Gerry invests $50,000 and goodwill of $40,000 is recorded, allocated to Pam and John based on their ownership stakes. In Scenario B, Gerry invests $50,000 and the total capital is set at $210,000, resulting in a $8,000 bonus to Pam and John. The other scenarios vary the investment amount and whether goodwill is recorded or bonuses are distributed.

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    E15-7 admission

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    The document discusses several scenarios for admitting a new partner, Gerry, to an existing partnership between Pam and John. In Scenario A, Gerry invests $50,000 and goodwill of $40,000 is recorded, allocated to Pam and John based on their ownership stakes. In Scenario B, Gerry invests $50,000 and the total capital is set at $210,000, resulting in a $8,000 bonus to Pam and John. The other scenarios vary the investment amount and whether goodwill is recorded or bonuses are distributed.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    162 views12 pages

    E15-7 Admission

    Uploaded by

    Borussian Rama
    The document discusses several scenarios for admitting a new partner, Gerry, to an existing partnership between Pam and John. In Scenario A, Gerry invests $50,000 and goodwill of $40,000 is recorded, allocated to Pam and John based on their ownership stakes. In Scenario B, Gerry invests $50,000 and the total capital is set at $210,000, resulting in a $8,000 bonus to Pam and John. The other scenarios vary the investment amount and whether goodwill is recorded or bonuses are distributed.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 12

    E15-7

    ADMISSION OF A
    PARTNER
    A. GERRY INVESTS $50,000 AND GOODWILL IS TO BE
    RECORDED:

    Investment in partnership $ 50,000


    New partner's proportionate book value
    [($160,000 + $50,000) x 0.20] (42,000)

    Difference (investment cost > book value) $ 8,000

    Method: Goodwill to prior partners


    0.20 estimated total resulting capital $ 50,000
    Estimated total resulting capital
    ($50,000 /0.20) $ 250,000
    Estimated total resulting capital
    Total net assets not including goodwill $ 250,000
    ($160,000 + $50,000) (210,000)
    Estimated goodwill to prior partners $ 40,000
    Cash 50,000
    Goodwill 40,000
    Pam, Capital ($40,000 x 0.75) 30,000
    John, Capital ($40,000 x 0.25) 10,000
    Gerry, Capital ($250,000 x 0.20) 50,000
     
    B. GERRY INVESTS $50,000; TOTAL
    CAPITAL IS TO BE $210,000:
    Investment in partnership $ 50,000
    New partner's proportionate book value (42,000)
    [($160,000 + $50,000) x 0.20]
    Difference (investment > book value) $ 8,000

    Method: Goodwill or bonus to prior partners

    Specified total resulting capital $ 210,000


    Total net assets not including goodwill (210,000)
    ($160,000 + $50,000)
    Estimated goodwill $ 0
    Therefore, bonus of $8,000 to prior partners

    Cash 50,000
    Pam, Capital ($8,000 x .75) 6,000
    John, Capital ($8,000 x. 25) 2,000
    Gerry, Capital ($210,000 x .20) 42,000
    C. DIRECT PURCHASE FROM PAM;
    THUS, ONLY RECLASSIFY CAPITAL:

    Pam, Capital 32,000


    Gerry, Capital ($160,000 x 0.20) 32,000
    D. GERRY INVESTS $35,000; TOTAL
    CAPITAL TO BE $195,000:
    Investment in partnership $35,000
    New partner's proportionate book value (39,000)
    [($160,000 + $35,000) x 0.20]
    Difference (investment < book value) $(4,000)

    Specified total resulting capital $ 195,000


    Total net assets not including goodwill
    ($160,000 + $35,000) (195,000)
    Estimated goodwill $ 0
    Therefore, bonus of $4,000 to new partner

    Cash 35,000
    Pam, Capital ($4,000 x 0.75) 3,000
    John, Capital ($4,000 x 0.25) 1,000
    Gerry, Capital ($195,000 x 0.20) 39,000
    E. GERRY INVESTS $35,000 AND
    GOODWILL TO BE RECORDED:
    Investment in partnership $ 35,000
    New partner's proportionate book value
    [($160,000 + $35,000) x 0.20] (39,000)
    Difference (investment < book value) $(4,000)

    Method: Goodwill to new partner

    0.80 estimated total resulting capital $ 160,000


    Estimated total resulting capital
    ($160,000 / 0.80) $ 200,000
    Estimated total resulting capital $ 200,000
    Total net assets not including goodwill
    ($160,000 + $35,000) (195,000)
    Estimated goodwill to new partner $ 5,000

    Cash 35,000
    Goodwill 5,000
    Gerry, Capital 40,000*
    *$40,000 = $200,000 x 0.20
    F. GERRY INVESTS $35,000; INVENTORY
    WRITE DOWN OF $20,000 RECOGNIZED
    Write down inventory to LOCOM prior to admission
    of new partner. Reduction of $20,000 to market.

    Pam, Capital ($20,000 x 0.75) 15,000


    John, Capital ($20,000 x 0.25) 5,000
    Inventory 20,000
    Investment in partnership $35,000
    New partner's proportionate book value ($35,000)
    [($140,000 + $35,000) x .20]
    Difference (investment = book value) $ 0

    Method: No bonus or goodwill stated


    Cash 35,000
    Gerry, Capital ($175,000 x .20) 35,000

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