The Distance Plus partnership has the following capital balances at the beginnin

Question

The Distance Plus partnership has the following capital balances at the beginning of the current year:

Each of the following questions should be viewed independently.

If Sergio invests $130,000 in cash in the business for a 30 percent interest, what journal entry is recorded? Assume that the bonus method is used. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

If Sergio invests $120,000 in cash in the business for a 30 percent interest, what journal entry is recorded? Assume that the bonus method is used. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

If Sergio invests $75,000 in cash in the business for a 20 percent interest, what journal entry is recorded? Assume that the goodwill method is used. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

  Tiger (40% of profits and losses) $ 110,000   Phil (40%) 80,000   Ernie (20%) 95,000

Explanation / Answer

a. The journal entry is as follows:-

Dr Cash Account 130000

Cr Sergio Capital Account 124500

Cr Tiger Capital Account 2200

Cr Phil Capital Account 2200

Cr Ernie Capital Account 1100

Explanation :- Total Capital is $415000 (110000+80000+95000+130000). As Sergio portion is 30%, his capital balance will be $124500 (415000×30%). As $130000 was paid, a bonus of $5500 (130000 - $124500) is given to Tiger $2200 ($5500×40%), Phill $2200 ($5500×40%) , Ernie $1100 ($5500×20%)

b. ANSWER :- The Journal Entryou will be as follows :-

Dr Cash Account 120000

Dr Tiger Capital Account 600

Dr Phil Capital Account 600

Dr Ernie Capital Account 300

Cr Sergio Capital Account 121500

Explanation :- Total Capital is $ 405000 (110000+80000+95000+120000). As sergio's portion is 30% , his capital balance will be $121500. Because only $120000 was paid, a bonus of $1500 is taken from the partnership capital balance Tiger $600 ($1500×40%), Phill $600 ($1500×40%), Ernie $300 ($1500×20%)

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