Chapter 12, Problem 5BP

1.

To determine

Prepare journal entries to record Partner G’s April 30 withdrawal under each separate assumption.

Explanation of Solution

Partnership:

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 G sells her interest to Partner B for $250,000 after Partner B is approved as a partner.

Date		Account Title and Explanation	Debit ($)	Credit ($)
April 30		Partner G, Capital	606,000
		Partner B, Capital		606,000
		(To record admission of partner B)

Table (1)

b. Partner G gives her interest to a daughter-in-law, Partner K, and Partner K is approved as a partner.

Date		Account Title and Explanation	Debit ($)	Credit ($)
April 30		Partner G, Capital	606,000
		Partner K, Capital		606,000
		(To record admission of partner K)

Table (2)

c. Partner G is paid $606,000 in partnership cash for the equity.

Date		Account Title and Explanation	Debit ($)	Credit ($)
April 30		Partner G, Capital	606,000
		Cash		606,000
		(To record withdrawal of partner G with no bonus)

Table (3)

d. Partner G is paid $350,000 in partnership cash for the equity.

Date		Account Title and Explanation	Debit ($)	Credit ($)
April 30		Partner G, Capital	606,000
		Partner H, Capital (1)		51,200
		Partner CH, Capital		204,800
		Cash		350,000
		(To record withdrawal of partner G with bonus to old partners)

Table (4)

Working note:

Calculate the capital of Partner H:

$\begin{array}{c}\text{Partner}\text{H,Capital}\text{=}\left[\begin{array}{l}\left(\text{Partner}\text{G}\text{,}\text{Existing}\text{equity}-\text{cash}\right)\text{×}\\ \text{sharing}\text{percentage}\text{of}\text{income}\text{and}\text{loss}\end{array}\right]\\ \text{=}\text{\$606,000}-\text{\$350,000×}\frac{\text{1}}{\text{5}}\\ \text{=}\text{\$51,200}\end{array}$ (1)

Calculate the capital of Partner CH:

$\begin{array}{c}\text{Partner}\text{CH,Capital}\text{=}\left[\begin{array}{l}\left(\text{Partner}\text{G}\text{,}\text{Existing}\text{equity}-\text{Cash}\right)\text{×}\\ \text{sharing}\text{percentage}\text{of}\text{income}\text{and}\text{loss}\end{array}\right]\\ \text{=}\text{\$606,000}-\text{\$350,000×}\frac{\text{4}}{\text{5}}\\ \text{=}\text{\$204,800}\end{array}$ (2)

e. Partner G is paid $200,000 in partnership cash plus manufacturing equipment recorded on the partnership books at $538,000 less its accumulated depreciation of $336,000:

Date		Account Title and Explanation	Debit ($)	Credit ($)
April 30		Partner G, Capital	606,000
		Accumulated Depreciation- Manufacturing Equipment	336,000
		Partner H, Capital (3)		40,800
		Partner CH, Capital (4)		163,200
		Manufacturing Equipment		538,000
		Cash		200,000
		(To record withdrawal of partner G  with bonus to old partners)

Table (5)

Working note:

Calculate the capital of Partner H:

$\begin{array}{c}\text{Partner}\text{H,Capital}\text{=}\left\{\begin{array}{l}\left[\begin{array}{l}\text{Partner}\text{G,Existing equity}-\\ \left(\begin{array}{l}\text{Equipment}-\text{Accumulated}\text{depreciation}\text{of}\text{equipment}\text{+}\\ \text{Cash}\text{by}\text{Partner}\text{G}\text{in}\text{partnership}\end{array}\right)\end{array}\right]\\ \text{×Sharing}\text{percentage}\text{of}\text{profit}\text{and}\text{losses}\end{array}\right\}\\ \text{=}\left[\text{\$606,000}-\left(\text{\$538,000}-\text{\$336,000+\$200,000}\right)\right]\text{×}\frac{\text{1}}{\text{5}}\\ \text{=}\text{\$40,800}\end{array}$ (3)

Calculate the capital of Partner CH:

$\begin{array}{c}\text{Partner}\text{CH,Capital}\text{=}\left\{\begin{array}{l}\left[\begin{array}{l}\text{Partner}\text{G,Existing}\text{ equity}-\\ \left(\begin{array}{l}\text{Equipment}-\text{Accumulated}\text{depreciation}\text{of}\text{equipment}\text{+}\\ \text{Cash}\text{byPartner}\text{G}\text{in}\text{partnership}\end{array}\right)\end{array}\right]\\ \text{×Sharing}\text{percentage}\text{of}\text{profit}\text{and}\text{losses}\end{array}\right\}\\ \text{=}\left[\text{\$606,000}-\left(\text{\$538,000}-\text{\$336,200+\$200,000}\right)\right]\text{×}\frac{\text{4}}{\text{5}}\\ \text{=}\text{\$163,200}\end{array}$ (4)

2.

To determine

Prepare journal entry to record Partner C entry into the partnership under each separate assumption.

Explanation of Solution

Record journal entry for the entry of Partner C into the partnership if Partner C invests (a) $300,000:

Date		Account Title and Explanation	Debit ($)	Credit ($)
April 30		Cash	300,000
		Partner C, Capital (5)		300,000
		(To record admission of partner C)

Table (6)

Working note:

Calculate the Capital of Partner C:

$\begin{array}{c}\text{Partner}\text{C,Capital}\text{=}\left[\begin{array}{l}\text{Equities}\text{of}\text{existing Partners}\text{+}\\ \text{Investment}\text{made}\text{by}\text{Partner}\text{C}\text{×}\\ \text{Percentage}\text{of}\text{partnership}\text{equity}\end{array}\right]\\ \text{=}\text{\$1,200,000+\$300,000×20\%}\\ \text{=\$300,000}\end{array}$ (5)

Note: Equities of existing partners ($1,200,000) = $\$606,000+\$148,000+\$446,000$

Record journal entry for the entry of Partner C into the partnership if Partner C invests (b) $196,000:

Date		Account Title and Explanation	Debit ($)	Credit ($)
April 30		Cash	196,000
		Partner G, Capital (7)	41,600
		Partner H, Capital (8)	8,320
		Partner CH, Capital (9)	33,280
		Partner C, Capital (6)		279,200
		(To record admission and bonus of partner C)

Table (7)

Working note:

Calculate the capital of Partner C:

$\begin{array}{c}\text{Partner}\text{C,Capital}\text{=}\left[\left(\begin{array}{l}\text{Equities}\text{of}\text{existing}\text{Partners}\text{+}\\ \text{Investment}\text{made}\text{by}\text{Partner}\text{C}\end{array}\right)\text{×Percentage}\text{of}\text{equity}\right]\\ \text{=\$1,200,000}\text{+\$196,000×20\%}\\ \text{=\$279,200}\end{array}$ (6)

Calculate the bonus given by Partner G to Partner C:

$\begin{array}{c}\begin{array}{l}\text{Bonus}\text{from}\\ \text{Partner}\text{G,capital}\end{array}\}\text{=}\left(\begin{array}{l}\text{Total}\text{bonus}\text{×}\text{sharing}\text{percentage}\\ \text{of}\text{profit}\text{and}\text{losses}\end{array}\right)\\ \text{=}\text{\$83,200 (10)×}\frac{\text{5}}{\text{10}}\\ \text{=}\text{\$41,600}\end{array}$ (7)

Calculate the bonus given by Partner H to Partner C:

$\begin{array}{c}\begin{array}{l}\text{Bonus}\text{from}\\ \text{Partner}\text{H,capital}\end{array}\}\text{=}\left(\begin{array}{l}\text{Total}\text{bonus}\text{×}\text{sharing}\text{percentage}\\ \text{of}\text{profit}\text{and}\text{losses}\end{array}\right)\\ \text{=}\text{\$83,200(10)}\text{×}\frac{\text{1}}{\text{10}}\\ \text{=}\text{\$8,250}\end{array}$ (8)

Calculate the bonus given by Partner CH to Partner C:

$\begin{array}{c}\begin{array}{l}\text{Bonus}\text{from}\\ \text{Partner}\text{C,capital}\end{array}\}\text{=}\left(\begin{array}{l}\text{Total}\text{bonus}\text{×}\text{sharing}\text{percentage}\\ \text{of}\text{profit}\text{and}\text{losses}\end{array}\right)\\ \text{=}\text{\$83,200 (10)}\text{×}\frac{\text{4}}{\text{10}}\\ \text{=}\text{\$33,280}\end{array}$ (9)

Calculate the total bonus given to Partner CH:

$\begin{array}{c}\begin{array}{l}\text{Total}\text{bonus}\\ \text{given}\text{to}\text{partner}\text{CH}\end{array}\}\text{=Partner}\text{CH, Capital}-\text{Cash}\\ \text{=}\text{\$279,200}-\text{\$196,000}\\ \text{=\$83,200}\end{array}$ (10)

Record journal entry for the entry of Partner C into the partnership if Partner C invests (c) $426,000:

Date		Account Title and Explanation	Debit ($)	Credit ($)
April 30		Cash	426,000
		Partner G, Capital (12)		50,400
		Partner H, Capital (13)		10,080
		Partner CH, Capital (14)		40,320
		Partner C, Capital (11)		325,200
		(To record admission OF Partner C and bonus to old partners)

Table (8)

Working notes:

Calculate the capital of Partner C:

$\begin{array}{c}\text{Partner}\text{C,Capital}\text{=}\left[\begin{array}{l}\left(\begin{array}{l}\text{Equities}\text{of}\text{existing}\text{Partners+}\\ \text{Investment}\text{made}\text{by}\text{Partner}\text{C}\end{array}\right)\\ \text{×Percentage}\text{of}\text{partnership}\text{equity}\end{array}\right]\\ \text{=\$1,200,000}\text{+\$426,000×20\%}\\ \text{=\$325,200}\end{array}$ (11)

Calculate the bonus given to Partner G:

$\begin{array}{c}\begin{array}{l}\text{Bonus}\text{to}\\ \text{Partner}\text{G}\end{array}\}\text{=}\left(\begin{array}{l}\text{Total}\text{bonus}\text{×}\text{sharing}\text{percentage}\\ \text{of}\text{profit}\text{and}\text{losses}\end{array}\right)\\ \text{=}\text{\$100,800 (15)×}\frac{\text{5}}{\text{10}}\\ \text{=}\text{\$50,400}\end{array}$ (12)

Calculate the bonus given to Partner H:

$\begin{array}{c}\begin{array}{l}\text{Bonus}\text{to}\\ \text{Partner}\text{H}\end{array}\}\text{=}\left(\begin{array}{l}\text{Total}\text{bonus}\text{×}\text{sharing}\text{percentage}\\ \text{of}\text{profit}\text{and}\text{losses}\end{array}\right)\\ \text{=}\text{\$100,800(15)×}\frac{\text{1}}{\text{10}}\\ \text{=}\text{\$10,080}\end{array}$ (13)

Calculate the bonus given to Partner C:

$\begin{array}{c}\begin{array}{l}\text{Bonus to}\\ \text{Partner}\text{C}\end{array}\}\text{=}\left(\begin{array}{l}\text{Total}\text{bonus}\text{×}\text{sharing}\text{percentage}\\ \text{of}\text{profit}\text{and}\text{losses}\end{array}\right)\\ \text{=}\text{\$100,800 (15)}\text{×}\frac{\text{4}}{\text{10}}\\ \text{=}\text{\$40,320}\end{array}$ (14)

Calculate the total bonus given to Partners:

$\begin{array}{c}\begin{array}{l}\text{Total}\text{bonus}\\ \text{given}\text{to}\text{partner}\end{array}\}\text{=}\left(\text{Cash}-\text{partner}\text{C, capital}\right)\\ \text{=}\text{\$426,000}-\text{\$325,200}\\ \text{=\$100,800}\end{array}$ (15)