Question

Exercise 15-9 Beth, Steph, and Linda have been operating a small gift shop for several years. After an extensive review of their past operating performance, the partners concluded that the business needed to expand in order to provide an adequate return to the partners. The following balance sheet is for the partnership prior to the admission of a new partner, Mary. Cash Other Assets Liabilities Beth, Capital (40%) Steph, Capital (40%) Linda, Capital (20%) $146,000 703,000 $849,000 $ 237,000 282,000 198,000 132,000 $849,000 Figures shown parenthetically reflect agreed profit-and-loss sharing percentages. Prepare the necessary journal entries to record the admission of Mary in each of the following independent situations. Some situations may be recorded in more than one way. (a) Your answer is correct. Mary is to invest sufficient cash to receive a one-sixth capital interest. The parties agree that the admission is to be recorded without recognizing goodwill or bonus. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter o for the amounts.) Account Titles and Explanation Debit Credit cash 122400 Mary, Capital 122400 SHOW LIST OF ACCOUNTS LINK TO TEXT

Please do parts C and D.

C) mary is to invest 160000 for one fourth capital interest.

d) mary is to invest 160000 for 40% capital interest

Answer 1

c.

Account Titles and Explanation	Debit	Credit
Cash	160,000
Beth, Capital [(193000-160000)*40%]	13200
Steph, Capital [(193000-160000)*40%]	13200
Linda, Capital [(193000-160000)*20%]	6600
Mary, Capital		193,000

Workings:

Beth, Capital	282,000
Steph, Capital	198,000
Linda, Capital	132,000
Investment by Mary	160,000
Total capital	772,000
Mary's share	1/4
Book value acquired by Mary	193000

d.

Account Titles and Explanation	Debit	Credit
Cash	160,000
Goodwill	248,000
Mary, Capital		408,000

Workings:

Beth, Capital	282,000
Steph, Capital	198,000
Linda, Capital	132,000
Total current capital	612,000
Existing partners interest	60%
Total implicit capital	1020000
Less: Invested capital	772,000
Goodwill	248,000