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15 April, 16:26

At April 30, partners' capital balances in PDL Company are G. Donley $52,000, C. Lamar $48,000, and J. Pinkston $18,000. The income sharing ratios are 5 : 4 : 1, respectively. On May 1, the PDLT Company is formed by admitting J. Terrell to the firm as a partner. Journalize the admission of Terrell under each of the following independent assumptions. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places, e. g. 5,275.) (1) Terrell purchases 50% of Pinkston's ownership interest by paying Pinkston $16,000 in cash. (2) Terrell purchases 331/3% of Lamar's ownership interest by paying Lamar $15,000 in cash. (3) Terrell invests $62,000 for a 30% ownership interest, and bonuses are given to the old partners. (4) Terrell invests $42,000 for a 30% ownership interest, which includes a bonus to the new partner.

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  1. 15 April, 16:44
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    See the explanation below

    Explanation:

    (1) Terrell purchases 50% of Pinkston's ownership interest by paying Pinkston $16,000 in cash.

    Amount to debit and credit = $18,000 * 50% = $9,000

    Debit: Pinkston's capital account - $9,000

    Credit: Terrell's Capital account - $9,000

    Being the purchase of ownership interest from Pinkston by Terrell

    Note that the $16,000 paid by Terrell to Pinkston does not affect the partnership since it is an indirect transaction.

    (2) Terrell purchases 331/3% of Lamar's ownership interest by paying Lamar $15,000 in cash.

    Amount to debit and credit = $52,000 * 331/3% = $17,333

    Debit: Lamar's capital account - $16,667

    Credit: Terrell's Capital account - $16,667

    Being the purchase of ownership interest from Lamar by Terrell

    Note that the $15,000 paid by Terrell to Lamar does not affect the partnership since it is an indirect transaction.

    (3) Terrell invests $62,000 for a 30% ownership interest, and bonuses are given to the old partners.

    Terrel's Capital = ($52,000 + $48,000 + $18,000 + $62,000) * 30% = $54,000

    Bonus paid to old partners = $62,000 - $54,000 = $8,000

    Donley's Capital = $8,000 * (5 : 10) = $4,000

    Lamar Capital = $8,000 * (4 : 10) = $3,200

    Pinkston Capital = $8,000 * (1 : 10) = $800

    The entries are therefore as follows:

    Debit: Cash - $62,000

    Credit: Terrel's Capital - $54,000

    Credit: Donley's Capital - $4,000

    Credit: Lamar's Capital - $3,200

    Credit: Pinkston's Capital - $800

    Being the purchase of ownership interest by Terrel and bonus shared to old partners.

    (4) Terrell invests $42,000 for a 30% ownership interest, which includes a bonus to the new partner.

    Terrel's Capital = ($52,000 + $48,000 + $18,000 + $42,000) * 30% = $48,000

    New partner's bonus = $48,000 - $42,000 = $6,000

    Donley's Capital = $6,000 * (5 : 10) = $3,000

    Lamar's Capital = $6,000 * 4/10 = $2,400

    Pinkston's Capital = $6,000 * 1/10 = $600

    The entries are therefore as follows:

    Debit: Cash - $42,000

    Debit: Donley's Capital - $3,000

    Debit: Lamar's Capital - $2,400

    Debit: Pinkston's Capital - $600

    Credit: Terrel's Capital - $48,000

    Being the purchase of ownership interest by Terrel and bonus from old partners to him.
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