The capital balances of the DEF Partnership are as follows: Danielson $180,000; Eklund 95,000; Forsberg 150,000...
The capital balances of the DEF Partnership are as follows: Danielson $180,000; Eklund 95,000; Forsberg 150,000 Total $425,000
The partners' income sharing ratio is: Danielson, 25%; Eklund, 45%; Forsberg, 30%. Assume the partnership’s identifiable net assets are carried at amounts approximating fair value.
Case A: Assume Gustafson joins the partnership by contributing $125,000 to the partnership for a 20% interest in partnership capital.
Case B: Now assume Gustafson paid $90,000 for a 20% interest in partnership capital.
Instruction: For each case (each case is independent), please use both Bonus method and Goodwill method to analyze the problem. Prepare the Statement of Partners’ Capital Balances, as well as the related journals prepared for the partnership.
Homework Answers
Case 1:- Total capital of partnership after admission of Gustafson = $ 180000+$95000+$150000+$125000 =$550000
Gustafson's capital share in partnership =$550000 X 20% =$110000
Bonus(Goodwill) amount = Contribution of Gustafson - Gustafson's capital = $125000 - $ 110000 = $15000
Distribution of Bonus in old partners in thier old share ratio :-
Danielson = $15000 X25% =$3750
Eklund=$15000 X45℅=$6750
Forsberg =$15000 X 30℅=$4500
Journals entry will be
| Accounts | Debit$ | Credit$ |
| Cash | 125000 | |
| Gustafson capital | 110000 | |
| Danielson capital | 3750 | |
| Eklund capital | 6750 | |
| Forsberg capital | 4500 |
Statement of partners capital balance
| Danielson | Eklund | Forsberg | Gustafson | |
| Beg.Capital | $180000 | $95000 | $150000 | $0 |
| Bonus | +$3750 | +$6750 | +$4500 | -$15000 |
| New Partner contribution | - | - | - | $125000 |
| End.Capital | $183750 | $101750 | $154500 | $110000 |
Case 2:- Total capital of partnership after admission of Gustafson = $ 180000+$95000+$150000+$90000 =$515000
Gustafson's capital share in partnership =$515000 X 20% =$103000
Bonus(Goodwill) amount = Contribution of Gustafson - Gustafson's capital = $90000 - $ 103000 = -$13000
Contribution of old partners to new partner in thier old share ratio :-
Danielson = $13000 X25% =$3250
Eklund=$13000 X45℅=$5850
Forsberg =$13000 X 30℅=$3900
Journals entry will be
| Accounts | Debit$ | Credit$ |
| Cash | 90000 | |
| Danielson capital | 3250 | |
| Eklund capital | 5850 | |
| Forsberg capital | 3900 | |
| Gustafson capital | 103000 |
Statement of partners capital balance
| Danielson | Eklund | Forsberg | Gustafson | |
| Beg.Capital | $180000 | $95000 | $150000 | $0 |
| Old partners Contribution | -$3250 | -$5850 | -$3900 | +13000 |
| New Partner's contribution | - | - | - | $90000 |
| End.Capital | $176750 | $89150 | $146100 | $103000 |
Add Answer to:
The capital balances of the DEF Partnership are as follows:
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