Needs the entries for the following scenarios:
Capital accounts as follows : Mason ; 90,000 Jiri; 30,000 James; 60,000
a) Frank pays mason 25,000 for 20% of masons interest in the company
b) Frank invests 60,000 cash in the partnership for a 40% interest in the business. The original partners give Frank a bonus according to the ratio of their capital balances
c)Frank invests 40,000 cash in the partnership and receives an interest equal to his investment
d) Frank invests 60,000 cash in the partnership for a 20% interest in the business. A bonus to be recorded for the original partners on the basis of their capital balances.
e) Mason withdraws from the partnership, taking 105,000. The excess of withdrawn assets over Mason's partnership interest is distributed according to the balances of the capital accounts
f) mason withdraws by selling his interest directly to frank for 120,000
Thanks!!!!
To determine the entries for the given scenarios, we need to calculate how the capital accounts will be affected by each transaction. Let's go through each scenario step by step:
a) Frank pays Mason 25,000 for 20% of Mason's interest in the company:
First, calculate the value of Mason's interest: 90,000 x 0.20 = 18,000.
After the payment, Mason's capital account will decrease by 25,000, and Frank's capital account will increase by 18,000.
Updated capital accounts:
Mason: 90,000 - 25,000 = 65,000
Jiri: 30,000
James: 60,000
Frank: 18,000
b) Frank invests 60,000 cash in the partnership for a 40% interest in the business. The original partners give Frank a bonus according to the ratio of their capital balances:
Frank's capital account will be increased by his investment of 60,000.
Next, calculate the bonus for the original partners based on their capital balances:
Total capital balances = 90,000 + 30,000 + 60,000 + 60,000 = 240,000.
Mason's bonus = 90,000/240,000 x 60,000 = 22,500.
Jiri's bonus = 30,000/240,000 x 60,000 = 7,500.
James' bonus = 60,000/240,000 x 60,000 = 15,000.
Finally, update the capital accounts with the new investments and bonuses:
Updated capital accounts:
Mason: 65,000 + 22,500 = 87,500
Jiri: 30,000 + 7,500 = 37,500
James: 60,000 + 15,000 = 75,000
Frank: 18,000 + 60,000 = 78,000
c) Frank invests 40,000 cash in the partnership and receives an interest equal to his investment:
Frank's capital account will be increased by his investment of 40,000.
Updated capital accounts:
Mason: 87,500
Jiri: 37,500
James: 75,000
Frank: 78,000 + 40,000 = 118,000
d) Frank invests 60,000 cash in the partnership for a 20% interest in the business. A bonus is to be recorded for the original partners based on their capital balances:
Frank's capital account will be increased by his investment of 60,000.
Calculate the bonus for the original partners as in scenario b:
Mason's bonus: (90,000/240,000) x 60,000 = 22,500
Jiri's bonus: (30,000/240,000) x 60,000 = 7,500
James' bonus: (60,000/240,000) x 60,000 = 15,000
Updated capital accounts:
Mason: 87,500 + 22,500 = 110,000
Jiri: 37,500 + 7,500 = 45,000
James: 75,000 + 15,000 = 90,000
Frank: 118,000 + 60,000 = 178,000
e) Mason withdraws from the partnership, taking 105,000. The excess of withdrawn assets over Mason's partnership interest is distributed according to the balances of the capital accounts:
First, calculate Mason's partnership interest (his capital account balance): 110,000/400,000 x 100% = 27.5%
Mason's withdrawal amount exceeding his partnership interest: 105,000 - (27.5% x 400,000) = 105,000 - 110,000 = -5,000
Since Mason has a negative balance, it means he will receive less than his partnership interest.
Distribute the negative balance between the remaining partners based on their capital account balances:
Jiri's share: (37,500/172,500) x (-5,000) = -1,087
James's share: (75,000/172,500) x (-5,000) = -2,174
Updated capital accounts:
Mason: 110,000 - 105,000 = 5,000 (negative balance)
Jiri: 45,000 - 1,087 = 43,913
James: 90,000 - 2,174 = 87,826
Frank: 178,000
f) Mason withdraws by selling his interest directly to Frank for 120,000:
Mason's capital account will be decreased by 120,000, and Frank's capital account will be increased by the same amount.
Updated capital accounts:
Mason: 5,000 - 120,000 = -115,000 (negative balance)
Jiri: 43,913
James: 87,826
Frank: 178,000 + 120,000 = 298,000
These are the entries for the given scenarios, reflecting the changes in the capital accounts based on each transaction.
a) Frank pays Mason $25,000 for 20% of Mason's interest in the company.
1. Decrease Mason's capital account by $25,000. (Mason: $90,000 - $25,000 = $65,000)
2. Increase Frank's capital account by $25,000. (Frank: $0 + $25,000 = $25,000)
b) Frank invests $60,000 cash in the partnership for a 40% interest in the business. The original partners give Frank a bonus according to the ratio of their capital balances.
1. Increase Frank's capital account by $60,000. (Frank: $25,000 + $60,000 = $85,000)
2. Calculate the total capital balance of the original partners: Mason + Jiri + James = $65,000 + $30,000 + $60,000 = $155,000.
3. Calculate the bonus for each partner:
- Mason: ($65,000 / $155,000) * $60,000 = $25,161.29
- Jiri: ($30,000 / $155,000) * $60,000 = $11,612.90
- James: ($60,000 / $155,000) * $60,000 = $23,225.81
4. Decrease each original partner's capital account by their respective bonus amount:
- Mason: $65,000 - $25,161.29 = $39,838.71
- Jiri: $30,000 - $11,612.90 = $18,387.10
- James: $60,000 - $23,225.81 = $36,774.19
c) Frank invests $40,000 cash in the partnership and receives an interest equal to his investment.
1. Increase Frank's capital account by $40,000. (Frank: $85,000 + $40,000 = $125,000)
d) Frank invests $60,000 cash in the partnership for a 20% interest in the business. A bonus to be recorded for the original partners on the basis of their capital balances.
1. Increase Frank's capital account by $60,000. (Frank: $125,000 + $60,000 = $185,000)
2. Calculate the total capital balance of the original partners: Mason + Jiri + James = $39,838.71 + $18,387.10 + $36,774.19 = $94,999.
3. Calculate the bonus for each partner:
- Mason: ($39,838.71 / $94,999) * $60,000 = $25,225.25
- Jiri: ($18,387.10 / $94,999) * $60,000 = $11,734.59
- James: ($36,774.19 / $94,999) * $60,000 = $23,040.16
4. Decrease each original partner's capital account by their respective bonus amount:
- Mason: $39,838.71 - $25,225.25 = $14,613.46
- Jiri: $18,387.10 - $11,734.59 = $6,652.51
- James: $36,774.19 - $23,040.16 = $13,734.03
e) Mason withdraws from the partnership, taking $105,000. The excess of withdrawn assets over Mason's partnership interest is distributed according to the balances of the capital accounts.
1. Decrease Mason's capital account by $105,000. (Mason: $14,613.46 - $105,000 = -$90,386.54)
2. Calculate the total capital balance of the remaining partners: Jiri + James = $6,652.51 + $13,734.03 = $20,386.54.
3. Distribute the excess of withdrawn assets:
- Jiri: ($6,652.51 / $20,386.54) * $105,000 = $34,198.32
- James: ($13,734.03 / $20,386.54) * $105,000 = $70,801.68
f) Mason withdraws by selling his interest directly to Frank for $120,000.
1. Decrease Mason's capital account by $120,000. (Mason: -$90,386.54 - $120,000 = -$210,386.54)
2. Increase Frank's capital account by $120,000. (Frank: $185,000 + $120,000 = $305,000)