Concept explainers
1.
Prepare journal entries to record Partner B’s February 1 withdrawal under each separate assumption.
1.
Explanation of Solution
A partnership is an unincorporated form of business which is formed by an agreement, owned and managed mutually by two or more individuals, who invest their assets in the business and share the liabilities and profits among themselves.
a. Partner B sells interest to Person N for $160,000 after Person N is approved as a partner.
Date | Account Title and Explanation | Debit ($) | Credit ($) | |
February 1 | Partner B, Capital | 138,000 | ||
Partner N, Capital | 138,000 | |||
(To record admission of partner N) |
Table (1)
b. Partner B gives interest to a son-in-law, Person S, and Person S is approved as a partner.
Date | Account Title and Explanation | Debit ($) | Credit ($) | |
February 1 | Partner B, Capital | 138,000 | ||
Partner S, Capital | 138,000 | |||
(To record admission of partner S) |
Table (2)
c. Partner B is paid $ 138,000 in partnership cash for her equity.
Date | Account Title and Explanation | Debit ($) | Credit ($) | |
February 1 | Partner B, Capital | 138,000 | ||
Cash | 138,000 | |||
(To record withdrawal of partner S with no bonus) |
Table (3)
d. Partner B is paid $214,000 in partnership cash for her equity.
Date | Account Title and Explanation | Debit ($) | Credit ($) | |
February 1 | Partner B, Capital | 138,000 | ||
Partner M, Capital (1) | 28,500 | |||
Partner L, Capital (2) | 47,500 | |||
Cash | 214,000 | |||
(To record withdrawal of partner B with bonus) |
Table (4)
Working note:
Calculate the capital of Partner M:
Calculate the capital of Partner L:
e. Partner B is paid $30,000 in partnership cash plus equipment recorded on the partnership books at $70,000 less its
Date | Account Title and Explanation | Debit ($) | Credit ($) | |
February 1 | Partner B, Capital | 138,000 | ||
Accumulated Depreciation- Equipment | 23,200 | |||
Partner M, Capital (3) | 22,950 | |||
Partner L, Capital (4) | 38,250 | |||
Equipment | 70,000 | |||
Cash | 30,000 | |||
(To record withdrawal of partner B with bonus to old partners) |
Table (5)
Working note:
Calculate the capital of Partner M:
Calculate the capital of Partner L:
2.
Prepare
2.
Explanation of Solution
Record journal entry for the entry of Partner R into the partnership if Partner R invests (a) $200,000:
Date | Account Title and Explanation | Debit ($) | Credit ($) | |
February 1 | Cash | 200,000 | ||
Partner R, Capital (5) | 200,000 | |||
(To record admission of partner R) |
Table (6)
Working note:
Calculate the Capital of Partner R:
Note: Equities of existing partners ($600,000) =
Record journal entry for the entry of Partner R into the partnership if Partner R invests (b) $145,000:
Date | Account Title and Explanation | Debit ($) | Credit ($) | |
February 1 | Cash | 145,000 | ||
Partner M, Capital (7) | 12,375 | |||
Partner B, Capital (8) | 8,250 | |||
Partner L, Capital (9) | 20,625 | |||
Partner R, Capital (6) | 186,250 | |||
(To record admission and bonus of partner R) |
Table (7)
Working note:
Calculate the capital of Partner R:
Calculate the bonus given by Partner M to Partner R:
Calculate the bonus given by Partner B to Partner R:
Calculate the bonus given by Partner L to Partner R:
Calculate the total bonus given to Partner R:
Record journal entry for the entry of Partner R into the partnership if Partner R invests (c) $262,000:
Date | Account Title and Explanation | Debit ($) | Credit ($) | |
February 1 | Cash | 262,000 | ||
Partner M, Capital (12) | 13,950 | |||
Partner B, Capital (13) | 9,300 | |||
Partner L, Capital (14) | 23,250 | |||
Partner R, Capital (11) | 215,500 | |||
(To record admission and bonus to old partners) |
Table (8)
Working notes:
Calculate the capital of Partner R:
Calculate the bonus given to Partner M:
Calculate the bonus given to Partner B:
Calculate the bonus given to Partner L:
Calculate the total bonus given to Partners:
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Chapter 12 Solutions
Principles of Financial Accounting.
- The partnership of Tatum and Brook shares profits and losses in a 60:40 ratio respectively after Tatum receives a 10,000 salary and Brook receives a 15,000 salary. Prepare a schedule showing how the profit and loss should be divided, assuming the profit or loss for the year is: A. $40,000 B. $25,000 C. ($5,000) In addition, show the resulting entries to each partners capital account. Tatums capital account balance is $50,000 and Brooks is $60,000.arrow_forwardThe partnership of Magda and Sue shares profits and losses in a 50:50 ratio after Mary receives a $7,000 salary and Sue receives a $6,500 salary. Prepare a schedule showing how the profit and loss should be divided, assuming the profit or loss for the year is: A. $10,000 B. $5,000 C. ($12,000) In addition, show the resulting entries to each partners capital account.arrow_forwardThe partnership of Michelle, Amal, and Maureen has done well. The three partners have shared profits and losses in a 1:3 ratio, with capital balances of $60,000 each. Maureen wants to retire and withdraw. Prepare a schedule showing how the cost should be divided if Amal and Michelle decide to pay Maureen $70,000 for retirement of her capital account and the new agreement will share profits and losses 50:50.arrow_forward
- Principles of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax College