E15-7

Admission of a Partner LO 15-6 2

Page 802

Pam and John are partners in PI's partnership, having capital balances of $120,000 and $40,000, respectively, and share income

in a ratio of 3:1. Gerry is to be admitted into the partnership with a 20 percent interest in the business.

Required

For each of the following independent situations, first record Gerry's admission into the partnership and then specify and briefly

explain why the accounting method used in that situation is GAP or non-GAAP

a. Gerry invests $50,000, and goodwill is to be recorded.

b. Gerry invests S50,000. Total capital is to be $210,000; the partners use the bonus method

c. Gerry purchases the 20 percent interest by directly paying Pam $50,000. Gerry is assigned 20 percent interest in the

partnership solely from Pam's capital account.

d. Gerry invests $35,000, Toral capital is to be $195,000; the partners use the bonus method.

c. Gerry invests $35,000, and goodwill is to be recorded.

. Gerry invests $35,000. During the valuation process made as part of admitting the new partner, the partnership's inventory

determined to be overvalued. bv $20,000 beenuse of obsolescence. PI's partnership uses the lower-of-cost-or-mal

method for inventories