Question

Exercise 15-1 John, Jeff, and Jane decided to engage in a real estate venture as a partnership. John invested $106,700 cash and Jeff provided office equipment that is carried on his books at $84,000. The partners agree that the equipment has a fair value of $104,900. There is a $29,800 note payable remaining on the equipment to be assumed by the partnership. Although Jane has no physical assets to invest in the partnership, both John and Jeff believe that her experience as a real estate appraiser is a valuable skill needed by the partnership and is a basis for granting her a capital interest in the partnership. Assuming that each partner is to receive an equal capital interest in the partnership,

(a) Your answer is partially correct. Try again. Record the partnership formation under the bonus method. (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 0 for the amounts.) Account Titles and Explanation Debit Credit SHOW LIST OF ACCOUNTS LINK TO TEXT Attempts: 5 of 5 used

(b) NEED HELP WITH PART B Record the partnership formation under the goodwill method, and assume a total goodwill of $91,500. (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 0 for the amounts.) Account Titles and Explanation Debit Credit SHOW LIST OF ACCOUNTS NEED HELP WITH PART B PLEASE!!!

Answer 1

PART B

(b) Record the partnership formation under the goodwill method, and assume a total goodwill of $91,500.

Answer:

Account Titles and Explanation	Debit	Credit
Cash	106,700
Equipment	104,900
Goodwill	91,500
Notes Payable		29,800
John Capital		91,100
Jeff Capital		91,100
Jane Capital		91,100

Calculation:

Allocation of investment made by partners.

	John	Jeff	Jane
Cash	106,700
Equipment		104,900
Total Assets	106,700	104,900	0
Note payable assumed by partnership		29,800
Net Assets invested	106700	75100	0

So the Net assets invested = 181,800 and they have agreed to receive an equal capital interest in the partnership.

Im showing entry for Part A bonus method too, inorder to come to Part B Good will method from that.

Part A bonus method

Account Titles and Explanation	Debit	Credit
Cash	106700
Equipment	104900
Notes Payable		29800
John Capital		60600
Jeff Capital		60600
Jane Capital		60600

Here the total net assets invested is divided equally. That is 181800/3 = 60,600 as each partners capital

(b) Record the partnership formation under the goodwill method, and assume a total goodwill of $91,500.

So in Goodwill method, 91,500 is added to the company as capital,

Hence in addition to the 181800 which was divided equally among partners, we need to add goodwill of 91,500 equally too as they share equal interest in the firm.

So 91,500/3 = 30,500 along with 60,600 for each partner comes to = 91,100

Hence the entry will be :

Account Titles and Explanation	Debit	Credit
Cash	106,700
Equipment	104,900
Goodwill	91,500
Notes Payable		29,800
John Capital		91,100
Jeff Capital		91,100
Jane Capital		91,100