Q1. The Distance Plus partnership has the following capital balances at the beginning of the current year:
Each of the following questions should be viewed independently.
a. If Sergio invests $100,000 in cash in the business for a 25 percent interest, what journal entry is recorded? Assume that the bonus method is used.
b. If Sergio invests $60,000 in cash in the business for a 25 percent interest, what journal entry is recorded? Assume that the bonus method is used.
c. If Sergio invests $72,000 in cash in the business for a 25 percent interest, what journal entry is recorded? Assume that the goodwill method is used.
Q2. A partnership has the following account balances: Cash $50,000; Other Assets $600,000; Liabilities $240,000; Nixon, Capital (50 percent of profits and losses) $200,000; Hoover, Capital (20 percent) $120,000; and Polk, Capital (30 percent) $90,000. Each of the following questions should be viewed as an independent situation:
a. Grant invests $80,000 in the partnership for an 18 percent capital interest. Goodwill is to be recognized. What are the capital accounts thereafter?
b. Grant invests $100,000 in the partnership to get a 20 percent capital balance. Goodwill is not to be recorded. What are the capital accounts thereafter?
Q3. The Prince-Robbins partnership has the following capital account balances on January 1, 2015:
Prince is allocated 80 percent of all profits and losses with the remaining 20 percent assigned to Robbins after interest of 10 percent is given to each partner based on beginning capital balances.
On January 2, 2015, Jeffrey invests $37,000 cash for a 20 percent interest in the partnership. This transaction is recorded by the goodwill method. After this transaction, 10 percent interest is still to go to each partner. Profits and losses will then be split as follows: Prince (50 percent), Robbins (30 percent), and Jeffrey (20 percent). In 2015, the partnership reports a net income of $15,000.
a. Prepare the journal entry to record Jeffrey's entrance into the partnership on January 2, 2015.
b. Determine the allocation of income at the end of 2015.