Question

Hylands is admitted to the partnership of Reddick & Nole. Prior to her admission, the partnership books show Reddick's capital balance at S180,000 and Nole's at $90,000. Assume Reddick and Nole share profits and losses equally. Read the requirements. Requiremen 1. Compute each partner's equity on the books of the new partnership under the following plans: a. Hylands pays $100,000 for Nole's equity. Hylands pays Nole directly. Begin by computing the partner's equity base for plan a. Hylands pays $100,000 for Nole's equity. Hylands pays Nole directly. (Enter a share for each partner. Complete all answer boxes. For accounts with a So balance, make sure to enter "O" in the appropriate cell. Enter negative amounts with a parentheses or minus sign.) Plan A Partnership capital before admission of Hylands Effect on capital balance as a result of admission of Hylands Partnership capital after admission of Hylands Reddick Nole Hylands Requirements 1. Compute each partner's equity on the books of the new partnership under the following plans: a. Hylands pays $100,000 for Nole's equity. Hylands pays Nole directly. b. Hylands contributes $90,000 to acquire a 1/4 interest in the partnership. c. Hylands contributes $135,000 to acquire a 114 interest in the partnership 2. Journalize the entries for admitting the new partner under plans a, b, and c. Print Done Enter any number in the edit fields and then click Check Answer

Answer 1

Answer:

1a. Hylands capital $90,000 and Reddick capital $180,000

1b. Hylands capital $90,000, Reddick capital $180,000 and Nole capital $90,000

1c. Hylands capital $101,250, Reddick capital $196,875 and Nole capital $106,875

2a. Debit Nole, capital $90,000

Credit Hylands, capital $90,000

2b. Debit Cash $90,000

Credit Hylands, capital $90,000

2c. Debit cash $135,000

Credit Hylands, capital $101,250

Credit Reddick, capital $16,875

Credit Nole, capital $16,875

Explanation:

1a and 2a. The transaction between Hylands and Nole is a sale on Nole's capital to Hylands at $100,000. Thus, the effect of this on partnership's book is the transfer of partner's capital from Nole to Hylands. The entry of transfer is to debit Nole's capital and credit Hylands capital in the amount of $90,000. Hylands pays Nole a greater amount than the capital he receives in the partnership. Partners capital after the transaction is Reddick $180,000 same amount before the acquisition and Hylands  capital is $90,000, the total capital of Nole before the transaction.

1b and 2b. First, let's compute if the acquisition is at bonus

Total contribution $270,000 + $90,000 = $360,000

$360,000 x 25% = $90,000 (interest)

Therefore, $90,000 contributed capital by Hylands compared to $90,000 interest is the same so there is no bonus.

In this purchase of interest, the total contribution of partners is $360,000 ($270,000 old contribution plus $90,000 investment of Hylands). The capital each partners is; Hylands $90,000, Reddick $180,000 and Nole $90,000. To record the transaction, we have to debit the cash received by the partnership in the amount of $90,000 and credit Hylands' capital in the amount of $90,000.

1c and 2c. First, let's compute if the acquisition is at bonus.

New capital contribution $135,000 +  90,000 + 180,000 = $405,000

$405,000 x 25% = $101,250

Therefore, $135,000 contributed capital by Hylands compared to $101,250 interest acquired, there is difference of $33,750 served as bonus. Hylands pays greater amount than the interest acquires, therefore there is bonusto od partners divided equally by Nole and Reddick.

$135,000 - $101,250 = $33,750 / 2 = $16,875 (bonus to Nole and Reddick each)

In this purchase of interest, the total contribution of partners is $405,000 ($270,000 old contribution plus $135,000 investment of Hylands). The capital each partners is; Hylands $101,250, Reddick $196,875 ($180,000 + $16,875) and Nole $106,875 ($90,000 + $16,875). To record the transaction, we have to debit the cash received by the partnership in the amount of $135,000 and credit Hylands' capital in the amount of $101,250, Credit Nole capital $16,875 to recognize the bonus and another credit to Reddick capital in the amount of $16,875.