24. The E.N.D. partnership has the following capital balances as of the end of the current year:
LO 14­10 Answer each of the following independent questions:
a. Assume that the partners share profits and losses 3:3:2:2, respectively. Fergie retires and is paid $190,000 based on the terms of the original partnership agreement. If the goodwill method is used, what is the capital balance of the remaining three partners?
b. Assume that the partners share profits and losses 4:3:2:1, respectively. Pineda retires and is paid $280,000 based on the terms of the original partnership agreement. If the bonus method is used, what is the capital balance of the remaining three partners?
25. The partnership of Matteson, Richton, and O’Toole has existed for a number of years. At the present time the partners have the following capital balances and profit and loss sharing percentages:
LO 14­10 O’Toole elects to withdraw from the partnership, leaving Matteson and Richton to operate the
business. Following the original partnership agreement, when a partner withdraws, the partnership
and all of its individual assets are to be reassessed to current fair values by an independent appraiser.
The withdrawing partner will receive cash or other assets equal to that partner’s current capital
balance after including an appropriate share of any adjustment indicated by the appraisal. Gains and
losses indicated by the appraisal are allocated using the regular profit and loss percentages.
An independent appraiser is hired and estimates that the partnership as a whole is worth
$600,000. Regarding the individual assets, the appraiser finds that a building with a book value of
$180,000 has a fair value of $220,000. The book values for all other identifiable assets and liabilities
are the same as their appraised fair values.
Accordingly, the partnership agrees to pay O’Toole $120,000 upon withdrawal. Matteson and
Richton, however, do not wish to record any goodwill in connection with the change in ownership.
Prepare the journal entry to record O’Toole’s withdrawal from the partnership.
26. In the early part of 2015, the partners of Hugh, Jacobs, and Thomas sought assistance from a local accountant. They had begun a new business in 2014 but had never used an accountant’s services.
LO 14­2, 14­4, 14­6, 14­9
Hugh and Jacobs began the partnership by contributing $150,000 and $100,000 in cash, respectively.
Hugh was to work occasionally at the business, and Jacobs was to be employed full­time. They decided
that year­end profits and losses should be assigned as follows:
• Each partner was to be allocated 10 percent interest computed on the beginning capital balances for the
period. • A compensation allowance of $5,000 was to go to Hugh with a $25,000 amount assigned to Jacobs.
• Any remaining income would be split on a 4:6 basis to Hugh and Jacobs, respectively.
In 2014, revenues totaled $175,000, and expenses were $146,000 (not including the partners’
compensation allowance). Hugh withdrew cash of $9,000 during the year, and Jacobs took out
$14,000. In addition, the business paid $7,500 for repairs made to Hugh’s home and charged it to
repair expense.
On January 1, 2015, the partnership sold a 15 percent interest to Thomas for $64,000 cash. This
money was contributed to the business with the bonus method used for accounting purposes.
Answer the following questions:
a. Why was the original profit and loss allocation, as just outlined, designed by the partners?
b. Why did the drawings for 2014 not agree with the compensation allowances provided for in the partnership agreement?
c. What journal entries should the partnership have recorded on December 31, 2014?
d. What journal entry should the partnership have recorded on January 1, 2015?
27. Following is the current balance sheet for a local partnership of doctors:
LO 14­3, 14­9, 14­10 The following questions represent independent situations:
a. E is going to invest enough money in this partnership to receive a 25 percent interest. No goodwill or bonus is to be recorded. How much should E invest?
b. E contributes $36,000 in cash to the business to receive a 10 percent interest in the partnership. Goodwill is to be recorded. Profits and losses have previously been split according to the following percentages: A, 30 percent; B, 10 percent; C, 40 percent; and D, 20 percent. After E makes this investment, what are the individual capital balances?
c. E contributes $42,000 in cash to the business to receive a 20 percent interest in the partnership. Goodwill is to be recorded. The four original partners share all profits and losses equally. After E makes this investment, what are the individual capital balances?
d. E contributes $55,000 in cash to the business to receive a 20 percent interest in the partnership. No goodwill or other asset revaluation is to be recorded. Profits and losses have previously been split according to the following percentages: A, 10 percent; B, 30 percent; C, 20 percent; and D, 40 percent. After E makes this investment, what are the individual capital balances?
e. C retires from the partnership and, as per the original partnership agreement, is to receive cash equal to 125 percent of her final capital balance. No goodwill or other asset revaluation is to be recognized. All partners share profits and losses equally. After the withdrawal, what are the individual capital balances of the remaining partners?

 

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