The partners of the PQ partnership agree to admit a new partner (R) into the par
ID: 2484199 • Letter: T
Question
The partners of the PQ partnership agree to admit a new partner (R) into the partnership. Below is information about the partnership immediately before admitting R.
P
Q
Capital Balance
$150,000
$50,000
Profit/Loss sharing ratio
40%
60%
agrees to pay $30,000 for a 10% interest in the partnership. Make the journal entry to admit R assuming that the payment is made to
a) the existing partners and the bonus method is used
b) the partnership and the bonus method is used
c) the existing partners and the goodwill method is used
d) the partnership and the goodwill method is used
P
Q
Capital Balance
$150,000
$50,000
Profit/Loss sharing ratio
40%
60%
Explanation / Answer
Bonus Method Partner Capital P 150000 Q 50000 R 30000 Total 230000 R is admitted at 10% interest So his capital should be $23000 He has given extra=$30000-$23000= $7000 In the form of bonus Goodwill Method R investment 30000 Interest in partnership 10% Total capital 300000 Less: P capitsl 150000 Q capital 50000 R investment 30000 Goodwill 70000 Accounts Title Dr Cr A P capital (23000*40%) 9200 R capital (23000*60%) 13800 R capital 23000 ( payment made to exisiting partner) Cash 7000 P Capital (7000*40%) 2800 Q Capital (7000*60%) 4200 B Cash 30000 P Capital (7000*40%) 2800 Q Capital (7000*60%) 4200 R Capital 23000 (In bonus method the extra amount paid is divided among partner in their old profit sharing ratio) C P Capital (30000*40%) 12000 Q Capital (30000*60%) 18000 R capital 30000 (Being R admitted in partnership and he paid to existing partner) Goodwill 70000 P Capital (70000*40%) 28000 Q Capital (70000*60%) 42000 (Being goodwill advantage given to old partners) D Cash 30000 R capital 30000 (Being R admitted in partnership) Goodwill 70000 P Capital (70000*40%) 28000 Q Capital (70000*60%) 42000 (Being goodwill advantage given to old partners)
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