Question

At April 30, partners' capital balances in Sheridan Company are G. Donley $51,000, C. Lamar $48,200, and J. Pinkston $17,200. The income sharing ratios are 5:4:1, respectively. On May 1, the PDLT Company is formed by admitting J. Terrell to the firm as a partner. Journalize the admission of Terrell under each of the following independent assumptions. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places, e.g. 5,275.) (1) Terrell purchases 50% of Pinkston's ownership interest by paying Pinkston $17,000 in cash. (2) Terrell purchases 33/3% of Lamar's ownership interest by paying Lamar $14,600 in cash. (3) Terrell invests $62,200 for a 30% ownership interest, and bonuses are given to the old partners. (4) Terrell invests $44,400 for a 30% ownership interest, which includes a bonus to the new partner.

Answer 1

Requirement 1: Prepare the journal entries as follows

Item	Account Title and Explanation	Debit	Credit
1	Pinkston - Capital ($17,200 × 50%)	$8,600
	Terrell - Capital		$8,600
	To record 50% interest purchased by Terrell from Pinkston

2	Lamar - Capital ($48,200 × 1/3)	$16,067
	Terrell - Capital		$16,067
	To record 50% interest purchased by Terrell from Lamar

3	Cash	$62,200
	Donley - Capital ($8,620 × 50%)		$4,310
	Lamar - Capital      ($8,620 × 40%)		$3,448
	Pinkston - Capital ($8,620 × 10%)		$862
	Terrell - Capital		$53,580
	To record investment by Terrell

Notes: Compute bonus to old partners as follows

Particulars	Amount
Donley	$51,000
Lamar	$48,200
Pinkston	$17,200
Terrell	$62,200
Total capital of partnership	$178,600
Terrell capital credit ($178,600 × 30%)	$53,580
Particulars	Amount
Investment by Terrell	$62,200
Deduct: Terrell capital credit ($178,600 × 30%)	$53,580
Bonus to old partners	$8,620

4	Cash	$44,400
	Donley - Capital ($3,840 × 50%)	$1,920
	Lamar - Capital      ($3,840 × 40%)	$1,536
	Pinkston - Capital ($3,840 × 10%)	$384
	Terrell - Capital		$48,240
	To record investment by Terrell

Notes: Compute bonus to new partner as follows

Particulars	Amount
Donley	$51,000
Lamar	$48,200
Pinkston	$17,200
Terrell	$44,400
Total capital of partnership	$160,800
Terrell capital credit ($160,800 × 30%)	$48,240
Particulars	Amount
Investment by Terrel	$44,400
Deduct: Terrell capital credit ($160,800 × 30%)	$48,240
Bonus to new partner	($3,840)

Requirement 2: compute cash investment and bonus to new partner as follows

Particulars	Amount
Total capital after Terrell admitted ($35,200 ÷ 20%)	$176,000
Deduct: Capital - old partners
Donley	($51,000)
Lamar	($48,200)
Pinkston	($17,200)
Terrell's cash investment	$59,600
Particulars	Amount
Decrease in Capital - Lamar ($48,200 − $35,200)	$13,000
÷ Lamer' income ratio	40%
Bonus to Terrell	$32,500