Question

The ABCD Partnership has the following balance sheet at January 1, 2017, prior to the admission of new partner, Eden. Cash and current assets $ 39,000 Liabilities $ 52,000 Land 234,000 Adams, capital 26,000 Building and equipment 130,000 Barnes, capital 52,000 Cordas, capital 117,000 Davis, capital 156,000 Total $ 403,000 Total $ 403,000 Eden acquired a 20% interest in the partnership by contributing a total of $71,500 directly to the other four partners. Goodwill is to be recorded. Profits and losses have previously been split according to the following percentages: Adams, 15%; Barnes, 35%; Cordas, 30%; and Davis, 20%. After Eden made his investment, what were the individual capital balances

Answer 1

Adam = $26,000, Barnes = $52,000, Cordas = $117,000, Davis = $156,000 & Eden = $87,750

Step-by-step explanation:

Net Assets before admission of Eden= $403,000-$52,000 (liabilities) = $351,000. So, this will be 80% i.e (100-20%) after admission of Eden. So, proportionate value = $351,000/80*100 = $438,750

Net assets after admission of Eden = $351,000 + $71,500 = $422,500. So, the difference = $438,750 - $422,500 = $16,250

Goodwill = Eden's proportionate share - Invested Money

Goodwill = [$438,750*20%] - $71,500

Goodwill = $87,750 - $71,500

Goodwill = $16,250

Journal Entry will be:

Cash a/c Dr $71,500

Goodwill a/c Dr $16250

To Eden's capital a/c $87,750

Individual capital account balances:

Adam = $26,000

Barnes = $52,000

Cordas = $117,000

Davis = $156,000

Eden = $87,750