Chapter 14 Advanced Solutions
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(659) Answers to Problems 1. B 2. C 3. C Mary Ann's investment is equal to 1/3 of the total capital ($50,000/$150,000). However, she is receiving a smaller capital balance, only a 1/4 interest. One explanation for this difference is that the business assets may be worth more than book value. To achieve agreement, the net assets could be valued upward to fair value with the adjustment recorded to the capital accounts of the original partners. As an alternative, a bonus could be credited to the original partners. 4. D The implied value of the company based on the new contribution is only $233,333 ($70,000/30%) which is below the total of the capital balances ($280,000 in original capital plus $70,000 to be invested). Thus, either the assets are overvalued or the new partner is also contributing goodwill. Since the problem indicates that goodwill is being recognized, that figure must be computed. Note that the $70,000 is going into the business and, thus, increases capital. Danville's investment $70,000 + Goodwill $70,000 + Goodwill .70 Goodwill Goodwill Danville's Investment (Capital). = = = = = =. 30% (Original Capital Plus Danville's Investment) .30 ($280,000 + $70,000 + Goodwill) $105,000 + .30 Goodwill $35,000 $50,000 $70,000 + $50,000 or $120,000. 5. C The implied value of the company is $800,000 ($200,000/25%). Since the current capital total is only $600,000, goodwill of $200,000 must be recognized. Oscar's investment is going to the partners so that it does not affect the capital total directly. Of the $200,000 in goodwill, 30 percent or $60,000 is attributed to Jethro which brings that capital balance to $260,000. Since a 25 percent interest is being conveyed to the new partner, Jethro's balance will then decrease by 25% or $65,000²a drop to $195,000. 6. B Total capital is $200,000 ($110,000 + $40,000 + $50,000) after the new investment. As Kansas's portion is to be 30 percent, the capital balance would be $60,000 ($200,000 × 30%). Since only $50,000 was paid, a bonus of $10,000 must be taken from the two original partners based on their profit and loss ratio: Bolcar ± $7,000 (70%) and Neary ± $3,000 (30%). The reduction drops Neary's capital balance from $40,000 to $37,000. 7. B Total capital is $270,000 ($120,000 + $90,000 + $60,000) after the new investment. However, the implied value of the business based on the new. c.
(660) investment is $300,000 ($60,000/20%). Thus, goodwill of $30,000 must be recognized with the offsetting allocation to the original partners based on their profit and loss ratio: Bishop ± $18,000 (60%) and Cotton $12,000 (40%). The increase raises Cotton's capital from $90,000 to $102,000. 8. A Total capital is $450,000 ($210,000 + $140,000 + $100,000) after the new investment. As Claudius's portion is to be 20 percent, the new capital balance would be $90,000 ($450,000 × 20%). Since $100,000 was paid, a bonus of $10,000 is being given to the two original partners based on their profit and loss ratio: Messalina ± $6,000 (60%) and Romulus ± $4,000 (40%). The increase raises Messalina's capital balance from $210,000 to $216,000 and Romulus's capital balance from $140,000 to $144,000. 9. D ASSIGNMENT OF INCOME²2007 c. c. c. c. c. c. Interest²10% of beginning capital .............. Salary ....................................... Allocation of remaining income ($6,000 divided on a 3:3:4 basis) Totals ............................. cc. c c.
(661) c. $ 6,000. $ 8,000 20,000. $10,000. $24,000 20,000. 1,800 $ 7,800. 1,800 $29,800. 2,400 $12,400. 6,000 $50,000. STATEMENT OF CAPITAL²2007 c. c. c. c. c. Beginning capital ................... Net income (above) ................ Drawings (given) .................... Ending capital .......................... cc. $60,000 7,800 (5,000) $62,800. cc cc
(662) c. $80,000 29,800 (5,000) $104,800. $100,000 $240,000 12,400 50,000 (5,000) (15,000) $107,400 $275,000. 10. A ASSIGNMENT OF INCOME²YEAR ONE c. c. c. c. c.
(663) cc. Interest²10% of beginning capital .............. $11,000 Salary ....................................... 20,000 Allocation of remaining loss ($80,000 divided on a 5:2:3 basis) (40,000) Totals ............................ $(9,000). c. c.
(664) c. $ 8,000 -0-. $11,000 10,000. $30,000 30,000. (16,000) $ (8,000). (24,000) (80,000) $ (3,000) $(20,000). STATEMENT OF CAPITAL²YEAR ONE c. c. c. c. c. Beginning capital ................... Net loss (above) ..................... Drawings (given) .................... Ending capital .................... c.
(665) c. c cc. $110,000 (9,000) (10,000) $ 91,000. $80,000 (8,000) (10,000) $62,000. cc.
(666) c. $110,000 $300,000 (3,000) (20,000) (10,000) (30,000) $ 97,000 $250,000.
(667) 10©ccc ASSIGNMENT OF INCOME²YEAR TWO c. c. c. c. c. c.
(668) cc. Interest²10% of beginning capital .............. $ 9,100 Salary ....................................... 20,000 Allocation of remaining loss ($15,000 divided on a 5:2:3 basis) (7,500) Totals ............................ $21,600. cc. c.
(669) c. $ 6,200 -0-. $ 9,700 10,000. $25,000 30,000. (3,000) $3,200. (4,500) (15,000) $15,200 $ 40,000. STATEMENT OF CAPITAL²YEAR TWO c. c. c. c. c. Beginning capital (above) ..... Net income (above) ................ Drawings (given) .................... Ending capital ....................
(670) cc. c. $ 91,000 21,600 (10,000) $102,600. $62,000 3,200 (10,000) $55,200. c.
(671) c. $ 97,000 $250,000 15,200 40,000 (10,000) (30,000) $102,200 $260,000. 11. A A $10,000 bonus is paid to Costello ($100,000 is paid rather than the $90,000 capital balance). This bonus is deducted from the two remaining partners according to their profit and loss ratio (2:3). A reduction of 60 percent (3/5) is assigned to Burns or a decrease of $6,000 which drops that partner¶s capital balance from $30,000 to $24,000. 12. D Craig receives an additional $10,000. Since Craig is assigned 20 percent of all profits and losses, this allocation indicates total goodwill of $50,000. 20% of Goodwill = $10,000 .20 G = $10,000 G = $10,000/.20 G = $50,000 Montana is assigned 30% of all profits and losses and would, therefore, record $15,000 of this goodwill, an entry that raises this partner's capital balance from $130,000 to $145,000. 13. A The implied value of the company is $900,000 ($270,000/30%). Since the money is going to the partners rather than into the business, the capital total is $490,000 before realigning the balances. Hence, goodwill of $410,000 must be recognized based on the implied value ($900,000 ± $490,000). This goodwill is assumed to represent unrealized business gains and is attributed to the original partners according to their profit and loss ratio. They will then each convey 30 percent ownership of the $900,000 partnership to Darrow for a capital balance of $270,000.. c.
(672) 14. D Since the money goes into the business, total capital becomes $740,000 ($490,000 + $250,000). Darrow is allotted 30 percent of this total or $222,000. Because Darrow invested $250,000, the extra $28,000 is assumed to be a bonus to the original partners. Jennings will be assigned 40 percent of this extra amount or $11,200. This bonus increases Jennings¶ capital from $160,000 to $171,200. 15. (10 Minutes) (Compute capital balances under both goodwill and bonus methods) a. c c Implied value of partnership ($80,000/40%) ................. Total capital after investment ($70,000 + $40,000 + $80,000) Goodwill .......................................................................... Goodwill to Hamlet (7/10) ............................................... $. Goodwill to MacBeth (3/10) ............................................ $ 3,000. Hamlet, capital (original balance plus goodwill) .......... $ 77,000. MacBeth, capital (original balance plus goodwill) ....... $ 43,000. Lear, capital (payment) (40% of total capital) ............... $ 80,000. b.c c c Total capital after investment ($70,000 + 40,000 + $80,000) Ownership portion²Lear .............................................. Lear, capital ..................................................................... c. $200,000 190,000 $ 10,000 7,000. $190,000 40% $ 76,000. Bonus payment made by Lear ($80,000 ± $76,000) ....... $. 4,000. Bonus to Hamlet (7/10) ................................................... $. 2,800. Bonus to MacBeth (3/10) ................................................ $. 1,200. Hamlet, capital (original balance plus bonus) .............. $ 72,800. MacBeth, capital (original balance plus bonus) ........... $ 41,200. Lear, capital (40% of total capital) ................................. $ 76,000.
(673) 16. (15 Minutes) (Prepare journal entries to record admission of new partner under both the goodwill and the bonus methods) Part a. Total capital is $300,000 ($85,000 + $60,000 + $55,000 + $100,000) after the new investment. As Sergio's portion is 25 percent, this partner's capital balance would be $75,000. Since $100,000 was paid, a bonus of $25,000 is given to the three original partners based on their profit and loss ratio: Tiger²$12,500 (50%), Phil²$7,500 (30%), and Ernie²$5,000 (20%). Cash .......................................................................... Sergio, Capital ..................................................... Tiger, Capital ........................................................ Phil, Capital .......................................................... Ernie, Capital ......................................................... 100,000 75,000 12,500 7,500 5,000. Part b. Total capital is $260,000 ($85,000 + $60,000 + $55,000 + $60,000) after the new investment. As Sergio's portion is to be 25 percent, this partner's capital balance would be $65,000. Because only $60,000 was paid, a bonus of $5,000 is taken from the three original partners based on their profit and loss ratio: Tiger²$2,500 (50%), Phil²$1,500 (30%), and Ernie²$1,000 (20%). Cash .......................................................................... Tiger, Capital ............................................................. Phil, Capital ............................................................... Ernie, Capital ............................................................. Sergio, Capital ...................................................... 60,000 2,500 1,500 1,000 65,000. Part c. Total capital is $272,000 ($85,000 + $60,000 + $55,000 + $72,000) after the new investment. However, the implied value of the business based on the new investment is $288,000 ($72,000/25%). Consequently, goodwill of $16,000 must be recognized with the offsetting allocation to the original partners based on their profit and loss ratio: Tiger²$8,000 (50%), Phil² $4,800 (30%), and Ernie²$3,200 (20%). Goodwill .................................................................... Tiger, Capital ........................................................ Phil, Capital .......................................................... Ernie, Capital ........................................................ Cash ........................................................................... Sergio, Capital ...................................................... c. 16,000 8,000 4,800 3,200 72,000 72,000.
(674) 17. (16 Minutes) (Determine capital balances after admission of new partner using both goodwill and bonus methods) Part a. Total capital is $490,000 ($200,000 + $120,000 + $90,000 + $80,000) after the new investment. However, the implied value of the business based on the new investment is only $444,444 ($80,000/18%). According to the goodwill method, this situation indicates that the new partner must be bringing some intangible attribute to the partnership other than just cash. This contribution must be computed algebraically and is recorded as goodwill to the new partner. G's Investment = .18 ($200,000 + $120,000 + $90,000 + G's Investment) $80,000 + Goodwill = .18 ($410,000 + $80,000 + Goodwill) $80,000 + Goodwill = $88,200 + .18 Goodwill .82 Goodwill = $8,200 Goodwill = $10,000 The above goodwill balance indicates that Grant's total investment is $90,000 (cash of $80,000 and goodwill of $10,000). A $90,000 contribution raises the total capital to $500,000 so that Grant does, indeed, have an 18 percent interest ($90,000/$500,000). CAPITAL BALANCES: Nixon .................................................................... Hoover .................................................................. Polk ..................................................................... Grant ...................................................................... $200,000 120,000 90,000 90,000. Part b. Total capital is $510,000 ($200,000 + $120,000 + $90,000 + $100,000) after the new investment. As Grant's portion is to be 20 percent, this partner's capital balance will be $102,000. Since only $100,000 was paid, a bonus of $2,000 is taken from the three original partners based on their profit and loss ratio: Nixon²$1,000 (50%), Hoover²$400 (20%), and Polk²$600 (30%). CAPITAL BALANCES c. c. c. c. Nixon .................... Hoover ................. Polk ...................... Grant .................... Total ................. c. c.
(675) !" c. $200,000 120,000 90,000 -0-. # $c. c. " c. 100,000. $(1,000) ( 400) ( 600) 2,000. $199,000 119,600 89,400 102,000 $510,000.
(676) 18. (8 Minutes) (Record admission of new partner and allocation of new income) Part a. Total capital is $336,000 ($150,000 + $110,000 + $76,000) after the new investment. However, the implied value of the business based on the new investment is $380,000 ($76,000/20%). Consequently, goodwill of $44,000 must be recognized with the offsetting allocation to the original two partners based on their profit and loss ratio: Com²$26,400 (60%) and Pack²$17,600 (40%). Goodwill ................................................................ Com, Capital ................................................... Pack, Capital ................................................... Cash ..................................................................... Hal, Capital ..................................................... Part b. c c c c c c Interest ................................. Remaining loss ..................... Income allocation ............ 26,400 17,600 76,000 76,000. %"&cc $12,760 (600) $12,160. " cc $7,600 (400) $7,200. " c $38,000 (2,000) $36,000. 19. (5 Minutes) (Allocation of income to partners) c c c c c c ' cc (!cc Bonus (20%) ......................... $18,000 $ -0Interest (15% of average capital) 15,000 30,000 Remaining loss ($18,000) .. (6,000) (6,000) Income assignment ............. $27,000 $24,000. "cc $ -045,000 (6,000) $39,000. " c $18,000 90,000 (18,000) $90,000. c. $c $17,640 (1,000) $16,640. 44,000.
(677) 20. (15 Minutes) (Allocate income and determine capital balances). c. ALLOCATION OF INCOME c c c c c c Interest (10%) Salary Remaining income (loss): $ 23,600 (12,600) (51,000) $(40,000). % & cc $ cc $ 6,600 (below) $ 4,000 18,000 25,000. (16,000). Totals. $ 8,600. (8,000) $21,000. ") cc $ 2,000 8,000. " c $12,600 51,000. (16,000). (40,000). $(6,000). $23,600. CALCULATION OF PURKERSON'S INTEREST ALLOCATION Balance, January 1²April 1 ($60,000 × 3) Balance, April 1²December 31 ($68,000 × 9) Total ................................................................................ Months ............................................................................. Average monthly capital balance .................................. Interest rate ..................................................................... Interest allocation (above) .............................................. $180,000 612,000 $792,000 ^ 12 $ 66,000 × 10% $ 6,600. STATEMENT OF PARTNERS' CAPITAL c. c. c. c. c. c. c. c. c. % & c. $ cc. Beginning balances .............. Additional contribution ......... Income (above) ...................... Drawings ($1,000 per month) Ending capital balances ......... $60,000 8,000 8,600 (12,000) $64,600. $40,000 -021,000 (12,000) $49,000. ") c. " c. $20,000 $120,000 -08,000 (6,000) 23,600 (12,000) (36,000) $ 2,000 $115,600.
(678) 21. (30 Minutes) (Allocate income for several years and determine ending capital balances) INCOME ALLOCATION²2009 c. c c c c *c Interest (12% of beginning capital) $2,400 Salary 12,000 Remaining income/loss: $(30,000) (15,600) (20,000) $(65,600) (19,680) Totals $(5,280). c $ 7,200 8,000. (32,800) $(17,600). ! c $ 6,000 -0-. " c $ 15,600 20,000. (13,120) (65,600) $(7,120) $(30,000). STATEMENT OF PARTNERS' CAPITAL²DECEMBER 31, 2009 c. c c c c Beginning balances ........... Income allocation ............... Drawings ............................. Ending balances ............ *c $20,000 (5,280) (10,000) $ 4,720. c $60,000 (17,600) (10,000) $32,400. INCOME ALLOCATION²2010 * c Interest(12% of beginning capital above) *$566 $3,888 Salary ................................. 12,000 8,000 Remaining income/loss: $20,000 (8,400) (20,000) $(8,400) (2,520) (4,200) Totals .................. $10,046 $7,688 *Rounded. ! c " c $50,000 $130,000 (7,120) (30,000) (10,000) (30,000) $32,880 $ 70,000. c! c $3,946 -0-. " c $ 8,400 20,000. (1,680) $2,266. (8,400) $20,000. STATEMENT OF PARTNERS' CAPITAL²DECEMBER 31, 2010 c. c. c c c c Beginning balances (above) Additional investment ........ Income allocation ............... Drawings ............................. Ending balances ............ *c $ 4,720 -010,046 (10,000) $ 4,766. c $32,400 -07,688 (10,000) $30,088. ! c $32,880 12,000 2,266 (10,000) $37,146. " c $70,000 12,000 20,000 (30,000) $72,000.
(679) 21©cc c. INCOME ALLOCATION²2011 c c c c *c c Interest (12+cof beginning capital above)* ........................... $ 572 $ 3,611 Salary .................................. 12,000 8,000c Remaining income: $40,000 (8,640) (20,000) $11,360 ......................... 2,272 4,544 Totals ......................... $14,844 $16,155. ! c. " c. $4,457 -0-. $ 8,640 20,000. 4,544 $9,001. 11,360 $40,000. *Rounded. c. c. STATEMENT OF PARTNERS' CAPITAL²DECEMBER 31, 2011 c c c c *cc c c! c " c Beginning balances (above) $ 4,766 $30,088 $37,146 $72,000 Income allocation 14,844 16,155 9,001 40,000 Drawings (10,000) (10,000) (10,000) (30,000) Ending balances $ 9,610 $36,243 $36,147 $82,000.
(680) 22. (12 Minutes) (Determine capital balances after retirement of a partner using both the goodwill and the bonus approaches) a. Harrison receives an additional $30,000 about the capital balance. Since Harrison is assigned 20 percent of all profits and losses, this extra allocation indicates total goodwill of $150,000, which must be split among all partners. 20% of Goodwill = $30,000 .20 G = $30,000 G = $150,000 CAPITAL BALANCES AFTER WITHDRAWAL c. c.
(681) !" c" "cc. Lennon McCartney Harrison Starr Total. $230,000 190,000 160,000 140,000. cc. $45,000 45,000 30,000 30,000. " " cc ," c" "c. $(190,000). $275,000 235,000 -0170,000 $680,000. b. A $50,000 bonus is paid to Lennon ($280,000 is paid rather than the $230,000 capital balance). This bonus is deducted from the three remaining partners according to their relative profit and loss ratio (3:2:1). A reduction of 50 percent (3/6) is assigned to McCartney or a decrease of $25,000 which drops this partner's capital balance from $190,000 to $165,000. A reduction of 33.3 percent (2/6) is assigned to Harrison or a decrease of $16,667 which drops this partner's capital balance from $160,000 to $143,333. A reduction of 16.7 percent (1/6) is assigned to Starr or a decrease of $8,333 which drops this partner's capital balance from $140,000 to $131,667.. c.
(682) 23. (45 Minutes) (Discussion of P&L allocations and admission of a new partner) a. The interest factor was probably inserted to reward Page for contributing $50,000 more to the partnership than Childers. The salary allowance gives an additional $15,000 to Childers in recognition of the full-time (rather than part-time) employment. The 40:60 split of the remaining income was probably negotiated by the partners based on other factors such as business experience, reputation, etc. b. The drawings show the assets removed by a partner during a period of time. A salary allowance is added to each partner's capital for the year (usually in recognition of work done) and is a component of net income allocation. The two numbers are often designed to be equal but agreement is not necessary. For example, a salary allowance might be high to recognize work contributed by one partner. The allowance increases the appropriate capital balance. The partner might, though, remove little or no money so that the partnership could maintain its liquidity. c. Page, Drawings ......................................................... 5,000 Repair Expense .................................................... (To reclassify payment made to repair personal residence.) Page, Capital ............................................................. Childers, Capital ....................................................... Page, Drawings (adjusted) .................................. Childers, Drawings .............................................. (To close drawings accounts for 2008.). 13,000 11,000. Revenues ................................................................... Expenses (adjusted by first entry) ..................... Income Summary ................................................. (To close revenue and expense accounts for 2008.). 90,000. 5,000. 13,000 11,000. 59,000 31,000. Income Summary ...................................................... 31,000 Page, Capital ........................................................ 11,000 Childers, Capital .................................................. 20,000 (To close net income to partners' capital±see allocation plan shown below.) c c "c*c $c %"!cc c c Interest (10% of beginning balance) $ 8,000 $ 3,000 Salary allowances 5,000 20,000 Remaining income (loss): $31,000 (11,000) (25,000) (2,000) (40%) (3,000) (60%) $ (5,000) $11,000 $20,000. c.
(683) 23©cc d. Total capital (original balances of $110,000 plus 2008 net income less drawings) .................................. Investment by Smith ................................................. Total capital after investment .................................. Ownership portion acquired by Smith .................... Smith, capital ............................................................ Amount paid .............................................................. Bonus paid by Smith²assigned to original partners. c. $117,000 43,000 $160,000 20% $ 32,000 43,000 $ 11,000. Bonus to Page (40%) ................................................. $4,400. Bonus to Childers (60%) ............................................ $6,600. Cash .......................................................................... Smith, Capital (20% of total capital) ................... Page, Capital ........................................................ Childers, Capital ................................................... 43,000 32,000 4,400 6,600.
(684) 24. (40 Minutes) (Reporting a change in the composition of a partnership) a. Exact amount of investment can only be computed algebraically: E Investment = 25% (Original Capital + E Investment) El = .25 ($270,000 + El) El = $67,500 + .25 El .75 El = $67,500 E Investment = $90,000 b. Implied value of partnership ($36,000/10%) ............. Total capital after investment by E ($270,000 + $36,000) Goodwill ..................................................................... Allocation of Goodwill: A (30%) ................................................................ $16,200 B (10%) ................................................................ 5,400 C (40%) ................................................................ 21,600 D (20%) ................................................................ 10,800 Total ................................................................ $54,000. c. CAPITAL BALANCES c c c c c Original balances $20,000 Goodwill (above) 16,200 Investment -0Capital balances $ 36,200. c $40,000 5,400 -0$45,400. c $ 90,000 21,600 -0$111,600. c $120,000 10,800 -0$130,800. $360,000 306,000 $ 54,000. c $-0-036,000 $36,000. c. Since E's investment of $42,000 is less than 20% of the resulting capital ($312,000). E is apparently bringing some other attribute to the partnership (goodwill) that must be computed: E Investment = 20% (Original Capital + E Investment) $42,000 + Goodwill = .20 ($270,000 + $42,000 + Goodwill) $42,000 + Goodwill = $62,400 + .20 Goodwill .80 Goodwill = $20,400 Goodwill = $25,500 E's investment is, therefore, $42,000 in cash and $25,500 in goodwill for a total capital balance of $67,500; the other capital accounts remain unchanged. Note that E's capital of $67,500 is 20% of the new total capital $337,500 ($270,000 + $67,500).. c.
(685) 24©cc d.. Total capital after investment ($270,000 + $55,000) Amount acquired by E .............................................. E's capital balance .................................................... E's payment ............................................................... Bonus being given to E ............................................ Bonus from: A (10%) ............................................................... B (30%) ............................................................... C (20%) ............................................................... D (40%) ................................................................ c. c c c c Original balances Investment Bonus (above) Capital balances. CAPITAL BALANCES c c c $20,000 $40,000 $90,000 -0-0-0(1,000) (3,000) (2,000) $37,000 $88,000 $19,000. e. C's capital balance C's collection (125%) Bonus being paid to C Bonus from: A (1/3) B (1/3) D (1/3). c. c. $325,000 20% $ 65,000 55,000 $ 10,000 $1,000 3,000 2,000 4,000. c $120,000 -0(4,000) $116,000. $10,000. c $-055,000 10,000 $65,000. $ 90,000 112,500 $ 22,500 $7,500 7,500 7,500. $22,500. CAPITAL BALANCES c c c c c c c Original balances ................ $20,000 $40,000 Bonus (above) ..................... (7,500) (7,500) -0Payment ............................... -0Capital balances .................. $12,500 $32,500. c c $ 90,000 $120,000 22,500 (7,500) (112,500) -0$ -0- $112,500.
(686) 25. (55 Minutes) (Allocation of income to the partners and determination of capital balances). c. c. ALLOCATION OF INCOME²2008 c c c c c c ' c " c Salary (8 months) ................ $8,000 $-0$ 8,000 Remaining $3,000 ................ 1,200 (40%) 1,800 (60%) 3,000 Totals .............................. $9,200 $1,800 $11,000 STATEMENT OF PARTNERS' CAPITAL²DECEMBER 31, 2008 c c c c c ' c " c Beginning Balances ($114,000 Invested capital split evenly² market value used for assets) $57,000 $57,000 $114,000 Income allocation (above) .. 9,200 1,800 11,000 Drawings .............................. -0-0-0Ending balances ............ $66,200 $58,800 $125,000 WALPOLE INVESTMENT JANUARY 1, 2009 Walpole's $54,000 investment increases total capital to $179,000. Walpole is credited with a 40% interest or $71,600. According to the problem, the excess $17,600 is a bonus from the original partners. Of this amount, $10,560 is allocated from Johnson (60%) and $7,040 from Boswell (40%). ALLOCATION OF INCOME²2009. c c. c c c c cc Salary ................................... $12,000 Remaining $8,000 loss ($28,000 ± $36,000) ........................... (960) Totals ......................... $11,040. ' cc $-0-. " - cc $24,000. " c $36,000. (3,840) $(3,840). (3,200) $20,800. (8,000) $28,000. STATEMENT OF PARTNERS' CAPITAL²DECEMBER 31, 2009 c c. c. c c c Beginning balances ............ Walpole's contribution ........ Income allocation (above) .. Drawings .............................. Ending balances ............. c c' cc $66,200 $58,800 (7,040) (10,560) 11,040 (3,840) (5,000) (5,000) $65,200 $39,400. " - cc " c $ -0- $125,000 71,600 54,000 20,800 28,000 (10,000) (20,000) $82,400 $187,000.
(687) 26©cc ADMISSION OF POPE²JANUARY 1, 2010 Pope's payment was made directly to the partners. Therefore, neither goodwill nor a bonus need be recognized. Instead, 10% of each capital balance shown above will be reclassified to Pope. The journal entry would be as follows: Boswell, Capital .............................................................. Johnson Capital ............................................................. Walpole, Capital . ............................................................ Pope, Capital .............................................................. 6,520 3,940 8,240 18,700. ALLOCATION OF INCOME²2010 c c. c. c. c. cc. Salary. $12,000 Remaining $400 income 54 Totals $12,054. ' cc. $-0162 $162. " - cc. $24,000 144 $24,144. %-c. " c. $9,600 40 $9,640. $45,600 400 $46,000. STATEMENT OF PARTNERSHIP CAPITAL²DECEMBER 31, 2010 c c. c. c c c Beginning balances Admission of Pope Allocation of income (above) Drawings Ending balances. cc ' cc $65,200 $39,400 (6,520) (3,940). " - c $82,400 (8,240). %-cc " c $-0- $187,000 18,700 -0-. 12,054 (5,000) $65,734. 24,144 (10,000) $88,304. 9,640 46,000 (4,000) (24,000) $24,340 $209,000. 162 (5,000) $30,622.
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