Answer:
A. $222,000
B. Dr Cash $80,000
Dr Goodwill $31,000
Cr Elan, Capital $111,000
C. Dr Cash $200,000
Cr Mary, Capital $40,080
Cr Gene, Capital $20,040
Cr Pat, Capital $6,680
Cr Elan, Capital $133,200
Explanation:
A. Calculation to determine how much must Elan invest for a one-third interest
FIRST STEP is to calculate the 2/3 of the total resulting capital balance of Mary, Gene, and Pat
Mary $266,400
Gene $133,200
Pat $44,400
Total $444,000
Total resulting capital balance=($444,000÷2/3)
Total resulting capital balance= $444,000 ÷ .666666
Total resulting capital balance=$ 666,000
SECOND STEP is to calculate how much must Elan invest for a one-third interest
Investment for one-third interest= $666,000 x 1/3
Investment for one-third interest=$666,000 x .333333
Investment for one-third interest=$221,999.9
Investment for one-third interest=$222,000 (Approximately)
Therefore how much must Elan invest for a one-third interest is $222,000
B. Preparation of the journal entry for the admission of Elan if she invests $80,000 for a 20 percent interest and goodwill is recorded.
First step is to calculate the goodwill Estimated amount to the new partner
Estimated total capital $ 555,000
[($444,000÷(100%-20%)]
Less Total net assets ($524,000)
($444,000 + $80,000)
Estimated goodwill to the new partner $31,000
($ 555,000-$524,000)
Preparation of the journal entry
Dr Cash $80,000
Dr Goodwill $31,000
Cr Elan, Capital $111,000
[(444,,000÷(100%-20%)*20%)]
=($444,000/80%*20%=$111,000)
C. Preparation of journal entry for the admission of Elan if she invests $200,000 for a 20 percent interest while the Total capital will be $600,000.
FIRST STEP
Amount Invested in partnership $ 20,000
Less New partner's book value ($133,200)
[($444,000 + $222,000) x .20]
Difference $66,800
($200,000-$133,200)
Preparation of the journal entry using ratio 6:3:1
Dr Cash $200,000
Cr Mary, Capital $40,080
($66,800 x .60)
Cr Gene, Capital $20,040
($66,800 x .30)
Cr Pat, Capital $6,680
($66,800 x .10)
Cr Elan, Capital $133,200
($666,000 x .20)
