Richardson and George have been partners in the medical supply business since July 18, 20X3. Since...
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Richardson and George have been partners in the medical supply business since July 18, 20X3. Since the formation of the partnership, profits and losses have been shared in the ratio of 55:45, respectively. Capital balances on December 31, 20X7, were $159,000 for Richardson and $106,000 for George. They have agreed to admit Keller as a partner on January 1, 20X8. Keller will receive a 30% interest in partnership capital, and future profits and losses will be allocated equally among the partners. Required: Prepare journal entries in the partnership books to record Keller's admission in each of the following situations: a. Keller deals directly with Richardson and agrees to exchange land with a book value of $60,000 and a fair market value of $87,000 for 50% of Richardson's interest in capital. Record Keller's contribution under the two alternative methods. What assumption is made under each alternative? b. Keller contributes $130,000 cash and a 1-year note with a value of $20,000 to the partnership entity. Record journal entries under the bonus and goodwill methods. c. Using the bonus method, assume that (1) Keller contributes $84,000 and an established clientele, or (2) Keller's contribution of $84,000 is sufficient because existing partnership assets are overvalued. d. Keller invests $84,000 in the partnership entity. Use the goodwill method and assume that net assets should not be written down. Richardson and George have been partners in the medical supply business since July 18, 20X3. Since the formation of the partnership, profits and losses have been shared in the ratio of 55:45, respectively. Capital balances on December 31, 20X7, were $159,000 for Richardson and $106,000 for George. They have agreed to admit Keller as a partner on January 1, 20X8. Keller will receive a 30% interest in partnership capital, and future profits and losses will be allocated equally among the partners. Required: Prepare journal entries in the partnership books to record Keller's admission in each of the following situations: a. Keller deals directly with Richardson and agrees to exchange land with a book value of $60,000 and a fair market value of $87,000 for 50% of Richardson's interest in capital. Record Keller's contribution under the two alternative methods. What assumption is made under each alternative? b. Keller contributes $130,000 cash and a 1-year note with a value of $20,000 to the partnership entity. Record journal entries under the bonus and goodwill methods. c. Using the bonus method, assume that (1) Keller contributes $84,000 and an established clientele, or (2) Keller's contribution of $84,000 is sufficient because existing partnership assets are overvalued. d. Keller invests $84,000 in the partnership entity. Use the goodwill method and assume that net assets should not be written down.
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a If Keller deals directly with Richardson and agrees to exchange land with a book value of 60000 an... View the full answer
Related Book For
Horngrens Accounting
ISBN: 978-0133855388
10th Canadian edition Volume 2
Authors: Tracie L. Miller Nobles, Brenda L. Mattison, Ella Mae Matsumura, Carol A. Meissner, Jo Ann L. Johnston, Peter R. Norwood
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