Pike, Quinn, and Reed are considering adding Shipp as a new partner. On March 31
ID: 2470412 • Letter: P
Question
Pike, Quinn, and Reed are considering adding Shipp as a new partner. On March 31 of the current year, the capital accounts of the three existing partners and their shares of profits and losses are as follows: Journalize the admission of Shipp as a partner on March 31 for each of the following independent situations: 1. Shipp pays Reed $200,000 cash to purchase Reed's interest in the partnership, (pp. 603-605) 2. Shipp invests $100,000 in the partnership, acquiring a one-fourth interest in the business, (pp. 605-606) 3. Shipp invests $80,000 in the partnership, acquiring a one-fourth interest in the business, (pp. 607-608)Explanation / Answer
In case of 2&3
Total Capital of Firm is $300000,
Shipp Share is 1/4 in partnership
Share of shipp in firm Capital =300000*1/4 =$75000
Cash given in case 2 is 100000$ contribution for goodwill $25000 (100000-75000)
In 3rd case 80000-75000 =$5000 goodwill
Date Account Title Debit Credit 1 Reed's Capital A/c $175,000.00 Goodwill a/c $50,000.00 Shipp's Capital $150,000.00 Reed's Capital $25,000.00 Pike's Capital $10,000.00 Quinn's Capital $15,000.00 2 Cash A/c $100,000.00 Shipp's Capital $100,000.00 Shipp's Capital $25,000.00 Reed's Capital $12,500.00 Pike's Capital $5,000.00 Quinn's Capital $7,500.00 3 Cash A/c $80,000.00 Shipp's Capital $80,000.00 Shipp's Capital $5,000.00 Reed's Capital $2,500.00 Pike's Capital $1,000.00 Quinn's Capital $1,500.00