Use the following information for the next FIVE items Ch ap te r 1 4 Review Q\" estions The following facts were available about the XY Partnership on January 1# 2016 Percentage Interest in Existing Partners Capital Balance Capital Profit X $70,000 35% 25% Y 130,000 65 75 On that date, Partner Z was admitted and acquired a 30 percent interest in the partnership capital and profit and losses. Answer the following independent cases about the admission of Partner Z. Assume that Partner Z transferred to the partnership assets with a fair value of $90,000. How would the admission of Partner Z be recorded using the bonus method? a. Debit Assets $90,000, Credit X-Capital $750, Credit Y-Capital $2,250, Credit Z-Capital $87,000. b. Debit Assets $100,000, Credit X-Capital $2,500, Credit Y-Capital $7,500, Credit Z-Capital $90,000 . Debit Assets $90,000, Credit Z-Capital $90,000. d. Debit Assets $93,000, Credit X-Capital $750, Credit Y-Capital $2,250, Credit Z-Capital $87,000. ANSWER: A Assume that Partner Z transferred to the partnership assets with a fair value of $90,000. Further, assume that the assets of the XY partnership (before admitting Partner Z) were undervalued. How would the admission of Partner Z be recorded using the goodwill method? a. Debit Assets $90,000, Credit X-Capital $750, Credit Y-Capital $2,250, Credit Z-Capital $87,000. b. Debit Assets $100,000, Credit X-Capital $2,500, Credit Y-Capital $7,500, Credit Z-Capital $90,000. c. Debit Assets $90,000, Credit Z-Capital $90,000. d. Debit Assets $93,000, Credit X-Capital $750, Credit Y-Capital $2,250, Credit Z-Capital $87,000. ANSWER: B Assume that Partner Z transferred to the partnership assets with a fair value of $75,000. What would be the change in 's capital under the bonus method? a. Debit $4,875 b. Credit $4,875 c. Debit$5625 ANSWER:C d. Credit $5,625 Assume that Partner Z transferred to the partnership assets with a fair value of $75,000, and that there is goodwill traceable to Partner Z. What would be the amount of Z's goodwill? a. $50,000 b. $25,000 . $10,714 ANSWER: C d. None of these Assume that Partner Z transferred to the partnership assets with a fair value of $75,000 and that there is gooduwill traceable to Partner Z. Further, assume that the assets of the XY Partnership (before the admission of Z) had a fair value of $182,000. What would be the amount of Z's goodwill? a. $50,000 b. $25,000 c. Noneofthese ~ANSWER:C d. 510,714 'Which of the following is true about the goodwill method of accounting for admission of a partner? a. The goodwill method is criticized because it allows the recognition of goodwill that was internally generated by the old partnership. b. The goodwill method allows recording both increases and decreases in the value of the old partnership's assets when a new partner is admitted. c. Both of these statements are correct. ANSWER: C d. None of these statements is correct Chapter 14 Review Questions Use the following information for the next THREE items ABC Partnership had the following information on January 1st, 2015 Percentage Interest in Existing Partners Capital Balance Capital Profit A $60,000 50% 2 B 30,000 25 2 30,000 25 1 On that date, Partner C decided to withdraw from the partnership. Answer the following independent cases. 7. Assume that Partner B uses $22,000 of her personal funds to purchase Partner C's interest in the partnership 9 . Assume that Partner C sells her interest to the Partnership for $32,000. Using the goodwill method, what in a private transaction. How would this transaction be recorded by the partnership? would be the goodwill traceable to the entire Partnership and Partner A's share of that goodwill, respectively? Entire Partnership A's Share a. Debit B-Capital $22,000, Credit C-Capital $22,000. . Debit C-Capital $22,000, Credit B-Capital $22,000. Entire partnership: A's Share: C. Debit C-Capital $30,000, Credit B-Capital $30,000. ANSWER: C $8,000 $4,000 d. Debit B-Capital $30,000, Credit C-Capital $30,000. b Entire partnership: A's Share: 8. Assume that Partner C sells her interest to the partnership for $25,000. How would this transaction be $8,000 $3,200 recorded using the bonus method: C. Entire partnership: A's Share: ANSWER: C a. Debit C-Capital $30,000, Credit A-Capital $20,000, Credit B-Capital $10,000. $10,000 $4,000 b. Debit C-Capital $30,000, Credit A-Capital $15,000, Credit B-Capital $15,000. c. Debit C-Capital $30,000, Credit Cash $25,000, Credit A-Capital $2,500, Credit B-Capital $2,500. d. Entire partnership: A's Share: d. Debit C-Capital $25,000, Credit Cash $25,000. $10,000 $5,000 ANSWER: C