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15
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Section 401 of the UPA of 1997 states that, “Each partner is entitled to an equal share
of the partnership profits and is chargeable with a share of the partnership losses in
proportion to the partner’s share of the profits.”
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E15-7 Admission of a Partner
Step 1:
Step 2:
Cash 50,000
Goodwill 40,000
NON- GAAP: Recognition of goodwill at the time a new partner is admitted is not
GAAP. Under GAAP, goodwill is to be recognized only when acquired. An entity
cannot recognize internally generated goodwill.
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b. Gerry invests $50,000; total capital is to be $210,000:
Cash 50,000
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Investment in partnership $ 35,000
Cash 35,000
GAAP: Partners may allocate capital among themselves, including new capital
received from a partner being admitted into the partnership.
Step 1:
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Step 2:
Cash 35,000
Goodwill 5,000
NON- GAAP: Recognition of goodwill at the time a new partner is admitted is not
allowed under GAAP.
E15-7 (continued)
Inventory 20,000
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Method: No bonus or goodwill stated.
Cash 35,000
GAAP: Note that the write down of inventory to its lower-of-cost-or-market value is
proper under GAAP. This results in the prior partners’ capital of $140,000 ($160,000
less $20,000 write down). Any revaluations of assets or liabilities that are proper
under GAAP should be made before determining the prior partners’ capital that is
used in computing the new partner’s proportionate book value of the total resulting
capital of the partnership.
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E15-9 Withdrawal of a Partner
Payment $ 38,000
Cash 38,000
b. Karl receives $42,000 and only the withdrawing partner's share of goodwill is
recognized:
Goodwill 12,000
Cash 42,000
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($5,000 / 1/6) $30,000
Record goodwill:
Goodwill 30,000
Withdrawal of Karl:
Cash 35,000
d. Section 701 of the UPA of 1997 defines the buyout price of a disassociated
partner’s interest in the partnership as the estimated amount that would be
distributable to that partner if the assets of the partnership were sold at a price
equal to the greater of the liquidation value or the value based on a sale of the
entire business as a going concern without the disassociated partner and the
partnership was wound up including all partnership obligations paid. Thus, the
buyout price is equivalent to what the disassociating partner would have received if
the partnership had wound up and terminated.
Cash 180,000
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c. Wayne invests $110,000 for a one-fourth interest; goodwill:
Step 1:
Step 2:
Cash 110,000
Goodwill 10,000
Step 1:
Step 2:
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Estimated total resulting capital $ 400,000
Record write-down:
Inventory 60,000
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P15-11 (continued)
Record admission of Wayne:
Cash 100,000
Step 1:
Step 2:
Revalue land:
Land 200,000
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value of land.
Cash 80,000
P15-11 (continued)
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Step 1:
Step 2:
Record goodwill:
Goodwill 40,000
Admission of Wayne:
Cash 100,000
of new partner:
New partner’s
Capital prior to
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Estimated new
Total resulting
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E15-1 Multiple-Choice Questions on Initial Investment [AICPA Adapted]
1. a –
2. c –
3. d –
4. b – $330,000 = $50,000 + ($310,000 - $30,000)
5. d –
Step 1:
Step 2:
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Total net assets not including goodwill
E15-8 (continued)
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Pete's capital credit = $77,000 x 1/5 = $15,400
partnership.
Cash 25,000
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Ralph, Capital ($5,000 x 0.30) 1,500
8. b
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