6. Mr. Incredible and Frozone are partners who share profits and losses in a rat

Question

6. Mr. Incredible and Frozone are partners who share profits and losses in a ratio of 3:2, respectively, and have the following capital balances on September 30, 2004: Mr. Incredible, Capital Frozone, Capital $50,000 $25,000 The partners agree to admit Elasti-girl to the partnership. Calculate the capital balances of each partner after the admission of Elasti-girl, assuming that bonuses are recorded when appropriate for each of the following assumptions: a. Elasti-girl pays Mr. Incredible $25,000 for 50 percent of his interest. b. Elasti-girl invests $25,000 for a 25 percent interest in the partnership. c. Elasti-girl invests $25,000 for a 30 percent interest in the partnership. d. Elasti-girl invests $25,000 for a 20 percent interest in the partnership.

Explanation / Answer

Total capital after Elasti-girl Admission Capital of two partners (25000+50000): 75,000 Add: Capital of new partner 25,000 Total capital of the firm 100,000 CASE-A: New partner bring: $ 25,000 for 50% Therefore Bonus to new partner: 100,000*50%-25000 = $ 25,000 Journal entry for admission: Cash Account Dr. 25000 Incredible Capital 15000 Frozone Capital 10000           Elasti-Girl capital 50,000 Balance in capital: Incredible (25000-15000) 10000 Frozone (50000-10000) 40000 Elasti-Girl 50,000 CASE-B: New partner bring: $ 25,000 for 25% Therefore Bonus to new partner: 100,000*25%-25000 = NIL Journal entry for admission: Cash Account Dr. 25000           Elasti-Girl capital 25,000 Balance in capital: Incredible 25000 Frozone 50000 Elasti-Girl 25,000 CASE-c New partner bring: $ 25,000 for 30% Therefore Bonus to new partner: 100,000*30%-25000 = $ 5,000 Journal entry for admission: Cash Account Dr. 25000 Incredible Capital 3000 Frozone Capital 2000           Elasti-Girl capital 30,000 Balance in capital: Incredible (25000-3000) 22000 Frozone (50000-2000) 48000 Elasti-Girl 30,000 CASE-D: New partner bring: $ 25,000 for 20% Therefore Bonus to OLD partner: 25000 - 100,000*20% =5000 Journal entry for admission: Cash Account Dr. 25000      Incredible Capital 3000      Frozone Capital 2000      Elasti-Girl capital 20,000 Balance in capital: Incredible (25000+3000) 28000 Frozone (50000+2000) 52000 Elasti-Girl 20,000

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