Partnership and Following Separate Assumptions

Part 1 Goering, Zarcus, and Schmit are partners and share income and loss in a 3:2:5 ratio. The partnership’s capital balances are as follows: Goering, $84,000; Zarcus, $69,000; and Schmit, $147,000. Zarcus decides to withdraw from the partnership, and the partners agree to not have the assets revalued upon Zarcus’s retirement.

Prepare journal entries to record Zarcus’s February 1 withdrawal from the partnership under each of the following separate assumptions: Zarcus (a) Sells her interest to Getz for $80,000 after Goering and Schmit approve the entry of Getz as a partner; (b) Gives her interest to a son-in-law, Swanson, and thereafter Goering and Schmit accept Swanson as a partner; (c) Is paid $69,000 in partnership cash for her equity; d) Is paid $107,000 in partnership cash for her equity; and (e) Is paid $15,000 in partnership cash plus equipment recorded on the partnership books at $35,000 less its accumulated depreciation of $11,600. Part 2 Assume that Zarcus does not retire from the partnership described in Part 1. Instead, Ford is admitted to the partnership on February 1 with a 25% equity. Prepare journal entries to record Ford’s entry into the partnership under each of the following separate assumptions: Ford invests (a) $100,000; b) $74,000; and (c) $131,000. SOLUTION Part 1 a) |Feb. 1 |Zarcus, Capital |69,000 | | | | Getz, Capital | |69,000 | | | To record admission of Getz. | | b) |Feb. 1 |Zarcus, Capital |69,000 | | | | Swanson, Capital | |69,000 | | | To record admission of Swanson. | | | ) |Feb. 1 |Zarcus, Capital |69,000 | | | | Cash | |69,000 | | | To record withdrawal of Zarcus with no bonus. | | | d) |Feb. |Zarcus, Capital |69,000 | | | |Goering, Capital* |14,250 | | | |Schmit, Capital** |23,750 | | | | Cash | |107,000 | | | To record withdrawal of Zarcus with bonus. | | * ($107,000 – $69,000) x 3/8 **($107,000 – $69,000) x 5/8 e) |Feb. 1 |Zarcus, Capital 69,000 | | | |

Accumulated Depreciation—Equipment |11,600 | | | | Goering, Capital* | |11,475 | | | Schmit, Capital** | |19,125 | | | Equipment | |35,000 | | | Cash | |15,000 | | | To record withdrawal of Zarcus with bonus to | | | | |old partners. | | | | |* [$69,000 – ($35,000 – $11,600 + $15,000)] x 3/8. | | | | |**[$69,000 – ($35,000 – $11,600 + $15,000)] x 5/8. | | | Part 2 a) |Feb. |Cash |100,000 | | | | Ford, Capital* | |100,000 | | | To record admission of Ford. | | | | |*Supporting calculations | | | | | $84,000 + $69,000 + $147,000 = $300,000 | | | | | ($300,000 + $100,000) x 25% = $100,000 | | | | | Thus, no bonus is received or paid. | | | b) |Feb. |Cash |74,000 | | | |Goering, Capital ($19,500* x 3/10) |5,850 | | | |Zarcus, Capital ($19,500* x 2/10) |3,900 | | | |Schmit, Capital ($19,500* x 5/10) |9,750 | | | | Ford, Capital | |93,500 | | | To record Ford’s admission and bonus. | | | | |* Supporting calculations | | | | | ($300,000 + $74,000) x 25% = $93,500 | | | | | $74,000 – $93,500 = $(19,500) | | | | | Thus, a bonus is paid to new partner. | | | c) |Feb. |Cash |131,000 | | | | Goering, Capital ($23,250* x 3/10) | |6,975 | | | Zarcus, Capital ($23,250* x 2/10) | |4,650 | | | Schmit, Capital ($23,250* x 5/10) | |11,625 | | | Ford, Capital | |107,750 | | | To record admission of Ford and bonus | | | | |to old partners. | | | | |* Supporting calculations | | | | | ($300,000 + $131,000) x 25% = $107,750 | | | | | $131,000 – $107,750 = $23,250 | | | | | Thus, a bonus is received by old partners. | | |