Chapter 12 homework Question 6

The Struter Partnership has total partners' equity of $700,000, which is made up of Main, Capital, $490,000, and Frist, Capital, $210,000. The partners share net income and loss in a ratio of 84% to Main and 16% to Frist. On November 1, Madison is admitted to the partnership and given a 20% interest in equity and a 20% share in any income and loss.

Prepare journal entries to record the admission of Madison for a 20% interest in the equity and a 20% share in any income and loss under the following independent assumptions.

(1) Record the admission of Madison with an investment of $175,000 for a 20% interest in the equity and a 20% share in any income and loss.

(2) Record the admission of Madison with an investment of $210,000 for a 20% interest in the equity and a 20% share in any income and loss.

(3) Record the admission of Madison with an investment of $145,000 for a 20% interest in the equity and a 20% share in any income and loss.

Explanation:
(1)
[($700,000 + $175,000) × 20%] = $175,000

(2)
Supporting computations
$700,000 + $210,000 = $910,000
$910,000 × 20% = $182,000
$210,000 – $182,000 = $28,000
$28,000 × 84% = $23,520
$28,000 × 16% = $4,480

(3)
Supporting computations
$700,000 + $145,000 = $845,000
$845,000 × 20% = $169,000
$145,000 – $169,000 = $(24,000)
$(24,000) × 84% = $(20,160)
$(24,000) × 16% = $(3,840)

Chapter 12 homework Question 7