Each of the following questions should be viewed independently.
The Distance Plus partnership has the following capital balances at the beginning of the current year:
Tiger (50% of profits and losses) $ 160,000 Phil (40%) 130,000 Ernie (10%) 145,000
Each of the following questions should be viewed independently.
If Sergio invests $190,000 in cash in the business for a 25 percent interest, what journal entry is recorded? Assume that the bonus method is used.
If Sergio invests $140,000 in cash in the business for a 25 percent interest, what journal entry is recorded? Assume that the bonus method is used.
If Sergio invests $150,000 in cash in the business for a 25 percent interest, what journal entry is recorded? Assume that the goodwill method is used.
Sr No | Account Titles & Explanation | Debit $ | Credit $ |
1 | Cash | 190000 | |
Tiger's capital [(190000-156250)*50%] | 16875 | ||
Phil's capital [(190000-156250)*40%] | 13500 | ||
Ernie's capital [(190000-156250)*10%] | 3375 | ||
Sergio's capital [(160000+130000+1450000+190000)*25%] | 156250 | ||
(Admission of Sergio) | |||
2 | Cash | 140000 | |
Tiger's capital (143750-140000)*50% | 1875 | ||
Phil's capital (143750-140000)*40% | 1500 | ||
Ernie's capital (143750-140000)*10% | 375 | ||
Sergio's capital [(160000+130000+1450000+140000)*25%] |
143750 |
||
(Admission of Sergio) | |||
3 (a) | Goodwill [(150000/25%)-(160000+130000+1450000+150000)] | 25000 | |
Tiger's capital (25000*50%) | 12500 | ||
Phil's capital (25000*40%) | 10000 | ||
Ernie's capital(25000*10%) | 2500 | ||
(Distribution of Goodwill) | |||
(b) | Cash | 150000 | |
Sergio's capital | 150000 | ||
(Admission of Sergio) | |||
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