Homework Answers
Admission of a partner journal entries
Cash account. Dr 58000
To Vernon's Capital account . 58000
(Being capital brought in by Vernon in cash)
Vernon's Capital account. Dr. 17500
To Irey capital account. (17500*1/2) 8750
To Pedigo capital account .(17500*1/2) 8750
(Being goodwill brought in by Vernon adjust through the capital accounts)
Computation of goodwill:
Cash brought in by Vernon=$58000
45% share in company= (40000+50000)*45%= $40500
Goodwill=58000-40500= $17500
Note: the goodwill will be distributed among old partners equally because nothing had been mentioned in the question regarding the sacrifice made by old partners individually to accommodate Vernon. Therefore it is safe to assume that they sacrifice their shares equally to give 45% share to Vernon.
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