Question 1

Answer each of the following independent questions.

Olivia and Mia are the two partners in the OliviaMia Partnership, and each has a Capital Account balance of $1,500,000. Profits are shared 60% to Olivia and 40% to Mia. Ryan wants to join the partnership as an equal (i.e., one third) partner. The partnership is quite profitable, so Olivia, Mia, and Ryan agree that a 40% interest in the partnership has a value of $2.2 million and Ryan pays this amount to the partnership. After admitting Ryan as a partner, Olivia and Mia will retain their relative proportion of profit allocation after granting Ryan a 20% profit allocation percentage. a. Using the Bonus (book) Method prepare the partnerships journal entry to record the admission of Ryan as a partner.

b. Now, assume the facts described in part a. The partners believe that Ryans willingness to pay $2.2 million for his interest provides evidence that the partnership has a previously unrecorded intangible asset.

Using the Goodwill Method, prepare the partnerships journal entry to record the admission of Ryan as a partner.