3) Joey and Rachel are partners whose capital balances are S400,000 and $300,000

Question

3) Joey and Rachel are partners whose capital balances are S400,000 and $300,000 and who share profits 3:2. Due to a shortage of cash, Joey and Rachel agree to admit Ross to the firm. Required Prepare the journal entries required to record Ross's admission under each of the following assumptions (a) Ross invests $200,000 for a 1/4 interest. The total firm capital is to be $900,000 (b) Ross invests $300,000 for a 1/4 interest. Goodwill is to be recorded (c) Ross invests $150,000 for a 1/5 interest. Goodwill is to be recorded (d) Ross purchases a 1/4 interest in the firm, with 1/4 of the capital of each old partner transferred to the account of the new partner. Ross pays the partners cash of $250,000, which they divide between themselves Debit Credit A. Cash Joev, Capital Rachel, Capital Ross, Capital Implied goodwill Goodwill = Goodwill Joev, Capital Rachel, Capital C. Implied goodwill Goodwill Goodwill Cash Ross, Capital D. Joey, Capital Rachel, Capital Ross, Capital

Explanation / Answer

A. Debit Credit Cash A/C $             900,000 Joey Capital $        400,000 Rachel Capital $        300,000 Ross Capital $        200,000 B. Implied Goodwill = $300,000 x 4 = $1,200,000 - $1,000,000 = $200,000) Goodwill A/C $             200,000 Joey Capital $        100,000 Rachel Capital $        100,000 (the amount of Goddwill brought by Ross is divided between existing partners in Scarifice Ratio 1:1) C. Implied Goodwill = $150,000 x 5 = $750,000 - $850,000 = $100,000) Cash A/C $             250,000 Goodwill A/C $        100,000 Ross Capital $        150,000 D. Ross Capital $             250,000 Joey Capital $        125,000 Rachel Capital $        125,000

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