Question

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Brown and Coss have been operating a tax accounting service as a partnership for five years. Their current cap- ital balances are $92,000 and $88,000, respectively, and they share profits in a 60:40 ratio. Because of the growth in their tax business, they decide that they need a new partner. Moore is admitted to the partnership, after which the partners agree to share profits 40% to Brown, 35% to Coss, and 25 % to Moore. Required: Prepare the necessary journal entries to admit Moore in each of the following independent conditions. If the infor- mation is such that both the bonus and goodwill methods are appropriate, record the admission using both methods. 1. Moore invests $90,000 in cash and receives a one-third capital interest. 2. Moore invests $120,000 cash for a 45% capital interest. Total capital after his admission is to be $300,000. 3. Moore agrees to invest $120,000 cash for a one-third capital interest, but will not accept a capital credit for less than his investment. 4. Moore invests $40,000 cash for a one-fourth capital interest. The partners agree that assets and the firm as whole should not be revalued. 5. Moore invests $35,000 cash for a one-fifth capital interest. The partners agree that total capital after the admission of Moore should be $225,000. Moore invests land in the partnership as a site fora new office building. The land, which originally cost Moore $90,000, now has a current market value of $150,000. Moore is admitted with a one-third capital interest. Moore is admitted to the partnership by purchasing a 30 % capital interest from cach partner. A payment of 6. 7. $35,000 is made outside the partnership and is split between Brown and Coss.

Answer 1

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