Question

Following is the current balance sheet for a local partnership of attorneys:

Cash and current assets	$66,000	Liabilities	$88,000
Land .	396,000	L, capital	44,000
Building and equipment (net)	220,000	M, capital	88,000
		N, capital	198,000
		O, capital	264,000
Totals	$682,000	Totals	$682,000

The following questions represent independent situations:

1. P is going to invest enough money in this partnership to receive a 25 percent interest. No goodwill or bonus is to be recorded. How much should P invest?
2. P contributes $79,200 in cash to the business to receive a 10 percent interest in the partnership. Goodwill is to be recorded. Profits and losses have previously been split according to the following percentages: L, 30 percent; M, 10 percent; N, 40 percent; and O, 20 percent. After P makes this investment, what are the individual capital balances?
3. P contributes $92,400 in cash to the business to receive a 20 percent interest in the part- nership. Goodwill is to be recorded. The four original partners share all profits and losses equally. After P makes this investment, what are the individual capital balances?
4. P contributes $121,000 in cash to the business to receive a 20 percent interest in the partnership. No goodwill or other asset revaluation is to be recorded. Profits and losses have previously been split according to the following percentages: L, 10 percent; M, 30 percent; N, 20 percent; and O, 40 percent. After P makes this investment, what are the individual capital balances?
5. N retires from the partnership and, as per the original partnership agreement, is to receive cash equal to 125 percent of her final capital balance. No goodwill or other asset revaluation is to be recognized. All partners share profits and losses equally. After the withdrawal, what are the individual capital balances of the remaining partners?

Answer 1

Above question is about partnership. Refer below images for the above asked questions, in a detailed way of solution.
Solution : Requirement @ : Exact amount of investment can only be computed algebraically: p Investment = 251. (original capital + P investment) P I= .25 ($594000 + PI) pl = $148500 + 25 pi .75 pí = $148500 : Pís $142500 = $198000 75 :P Investment = $ 198000 Requirement : Implied value of partnership ($79200 & 10%-) $792000 Total capital after investment by p($594000 & $79200) ($673200) : Goodwill 118800 Allocation $35640 of L M N o Good will : (30/-) (101) (401) (2010) Total $11880 $47520 $23760 118800

오 Capital Balances : particulars I original balances $44000 Goodwill (above) $35640 Investment $o capital balances $79640 M $88000 $1880 o 99880 N O $198000 $264000 $0 $47500 $23760 $0 $0 $0 $79200 $245520 9287760 $79200 Requirement : Because p's investment of $92400 is less than 201. of the resulting capital ($686400) pis apparently bringing some other attribute to the partnership (goodwill) that must be computed : pinvestment = 20%. (original capital + p investment) $92400 + Goodwill = 2010 (4594000 + $92400 + Goodwill) 392400 + Goodwill = $137280 + "20 Good with 80 Goodwill = $ 137280 - $92400 Goodwill = $ 44880 80 = $56100 * p's investment is, therefore, $92400 in cash and $56100 in good will for a total capital balance of g 148500 the other capital accounts remain unchanged. Note that P's capital of $148500 is act of the new capital $742500 (ie, $ 594000 + $148500).

$715600 2011 Requirement : Toral capital after investment (4594000 + $121000) Total acquired by pl P's capital balance p's payment Bonus given to P $ 143000 ( 121000) $22000 Bonos from: L (10 ) M (301) N (200) 0 (401) $2200 $ 6600 $4400 $ 8800 $ 22000 Total M $88000 N § 198000 0 $264000 * capital balances : particolars L original balances $44000 Investment Bonus (above) ($ 2200) capital balances $41800 R $0 $12.000 $22000 $143000 po ($6600) $81400 ($4400) $ 193600 (48800) $255200

Requirement : N'S capital balance N's collection (125-1-) Bonus paid to N - $19000 $247500 $49500 being * Bonos L M 0 from : (13) (13) (113) Total -> $16500 $ 16500 & 16500 $49500 capital balances : particulars original balances Bonos (above) payment capital balances → L $44000 ($16500) $0 $27500 M $88000 $16500) $0 $71500 N $198000 $49.500 ($247500) 80 - O $264000 ($16500) $0 $247500