Accounting for Special Transaction

Assignment 1 - Partnership Formation

The Distance Plus partnership has the following capital balances at the beginning of the current
Tiger 50% of profit and losses $85,000
Phil 30% 60,000
Ernie 20% 55,000
Each of the following questions should be viewed independently.
a. If Sergio invests $100,000 in cash in the business for a 25 percent interest, what journal entry
b. If Sergio invests $60,000 in cash in the business for a 25 percent interest, what journal entry i
c. If Sergio invests $72,000 in cash in the business for a 25 percent interest, what journal entry is

Answer:
A. Bonus Method
Before Transfer After P/L
50% Tiger 85,000 12,500 97,500 37.5%
30% Phil 60,000 7,500 67,500 22.5%
20% Ernie 55,000 5,000 60,000 15.0%
Sergio 100,000 (25,000) 75,000 25.0%
TCC 300,000 - 300,000 TAC

B. Bonus Method
Before Transfer After P/L
50% Tiger 85,000 (2,500) 82,500 37.5%
30% Phil 60,000 (1,500) 58,500 22.5%
20% Ernie 55,000 (1,000) 54,000 15.0%
Sergio 60,000 5,000 65,000 25.0%
TCC 260,000 - 260,000 TAC

C. Goodwill/Revaluation Method
Before Divided by Goodwill/Revaluation
Tiger 85,000 150,000.00 200,000 / 75%
Phil 60,000
Ernie 55,000 75%
Sergio 72,000 25% 288,000 New TAC
 TCC 272,000

Before Transfer After P/L

50% Tiger 85,000 8,000 93,000 37.5%
30% Phil 60,000 4,800 64,800 22.5%
20% Ernie 55,000 3,200 58,200 15.0%
Sergio 72,000 - 72,000 25.0%
TCC 272,000 16,000 288,000 TAC
Asset/Goodwill
beginning of the current year:

erest, what journal entry is recorded? Assume that the bonus method is used.
rest, what journal entry is recorded? Assume that the bonus method is used.
rest, what journal entry is recorded? Assume that the goodwill method is used.

Journal Entry
Cash 100,000
Sergio, Capital 100,000
To record Sergio's investment

Sergio, Capital 25,000

Tiger, Capital 12,500
Phil, Capital 7,500
Ernie, Capital 5,000
To record bonus from Sergio to Tiger, Phil and Ernie

Journal Entry
Cash 60,000
Sergio, Capital 60,000
To record Sergio's investment

Tiger, Capital 2,500

Phil, Capital 1,500
Ernie, Capital 1,000
Sergio, Capital 5,000
To record bonus from Tiger, Phil and Ernie to Sergio

Journal Entry
Cash 72,000
200,000 / 75% Sergio, Capital 72,000
To record Sergio's investment

Asset/Goodwill 16,000
 Tiger, Capital 8,000
Phil, Capital 4,800
Ernie, Capital 3,200
To record Asset/Goodwill