William and Frank are partners whose capital balances are $400,000 and $300,000 and who share profits 3:2. Due to a shortage of cash, William and Frank agree to admit Sammy to the firm.
Required: Prepare the journal entries required to record Sammy’s admission under each of the following assumptions:
- Sammy invests $200,000 for a 1/4 interest. The total firm capital is to be $900,000.
- Sammy invests $300,000 for a 1/4 interest. Goodwill is to be recorded.
- Sammy purchases a 1/4 interest in the firm, with 1/4 of the capital of each old partner transferred to the account of the new partner. Sammy pays the partners cash of $250,000, which they divide between themselves.
- The principal types of partnerships are general partnerships, limited partnerships, and joint ventures. Describe the characteristics of each type of partnership.
- There are two methods of recording changes in the membership of a partnership – the bonus method and the goodwill method. Describe these two methods of recording changes in partnership membership.
In 2-4 pages, complete the following:
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- Prepare the journal entries for the investment of 1/4 interest. No goodwill is recorded
- Prepare the journal entries for the investment of 1/4 interest. Goodwill is to be recorded.
- Prepare the journal entries for the purchase a 1/4 interest in the firm, with 1/4 of the capital of each old partner transferred to the account of the new partner.
- Explain the types of partnerships are general partnerships, limited partnerships, and joint ventures.
- Explain the two methods of recording changes in the membership of a partnership
- While the lack of formality may be viewed as an advantage of a partnership over a corporation, it is still necessary to plan for various factors affecting the partnership. Therefore, it is advisable for the partners to develop a written partnership agreement or articles of partnership.
- List seven provisions that should be included in the articles of partnership besides the partnership name and address, the names of the partners and the effective date of the partnership.
- Discuss why the articles of partnership are important.
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