The Distance Plus partnership has the following capital balances at the beginning of the current year:

Tiger (40% of profits and losses) $ 180,000

Phil (30%) 150,000

Ernie (30%) 165,000

Each of the following questions should be viewed independently.

a. If Sergio invests $190,000 in cash in the business for a 20 percent interest, what journal entry is recorded? Assume that the bonus method is used.

b. If Sergio invests $120,000 in cash in the business for a 20 percent interest, what journal entry is recorded? Assume that the bonus method is used.

c. If Sergio invests $130,000 in cash in the business for a 20 percent interest, what journal entry is recorded? Assume that the goodwill method is used.

NOTE:-I have very simple question the question is step one(a) and step two(b) are similar in requirements why we answered the question in different way

a) Total Capital after New investment = 180000 + 150000 + 165000 + 190000 = 685000 Sergio partner invested for 20% interest So Sergio partner capital balance would be = 685000 * 20% = 137000 Now given that Sergio partner invested 190000, but Sergio capital balance should be 137000, so the addition or bonus amount ie (190000 - 137000 = 53000) will be given to three old partner in their profit and loss ratio.(Tiger 40%, Phil 30%, Ernie 30%) 190000 Journal Entry Cash Account Debit Sergio Capital Account Credit Tiger Capital Account Credit Phil Capital Account Credit Ernie Capital Account Credit 137000 21200 (53000 * 40%) 15900 (53000 * 30%) 15900 (53000 * 30%) b) Total Capital after New investment = 180000 + 150000 + 165000 + 120000 = 615000 Sergio partner invested for 20% interest So Sergio partner capital balance would be = 615000 20% = 123000 Now given that Sergio partner invested 120000, but Sergio capital balance should be 123000 and Sergio only paid 120000 so the addition or bonus amount i.e (123000 - 120000 = 3000) will be taken from three old partner in their profit and loss ratio. (Tiger 40%, Phil 30%, Ernie 30%) 120000 1200 Journal Entry Cash Account Debit Tiger Capital Account Debit Phil Capital Account Debit Ernie Capital Account Debit Sergio Capital Account Credit 900 (3000 * 40%) (3000 30%) (3000 30%) 123000 900 c) Total Capital after New investment = 180000 + 150000 + 165000 + 130000 = 625000 Sergio partner invested for 20% interest So the value of business based on new investment = 130000 / 20% = 650000 So Goodwill of business must be recognized i.e (650000 - 625000 = 25000) so this goodwill will be allocated among three old partner in their profit and loss ratio.(Tiger 40%, Phil 30%, Ernie 30%) Journal Entry 25000 Goodwill Account Debit Tiger Capital Account Credit Phil Capital Account Credit Ernie Capital Account Credit 10000 (25000 * 40%) 7500 (25000 * 30%) 7500 (25000 * 30%) 130000 Cash Account Debit Sergio Capital Account Credit 130000