Partnership records goodwill

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Reese and Janet share partnership profits and losses at 70% and 30%, respectively. The partners agree to admit Smith into the partnership for a 50% interest in capital and earnings. Capital accounts immediately before the admission of Smith are:

Reese (70%) $ 400,000

Janet (30%) $ 300,000

Total $ 700,000

REQUIRED:

1. Prepare the journal entry(s) and defend your reasoning process for the admission of Smith to the partnership assuming Smith invested $400,000 for the ownership interest. Smith paid the money directly to Reese and to Janet for 50% of each of their respective capital interests. The partnership records goodwill.

2. Prepare the journal entry(s) and defend your reasoning process for the admission of Smith to the partnership assuming Smith invested $300,000 for the ownership interest. Smith paid the money to the partnership for a 50% interest in capital and earnings. The partnership records goodwill.

3. Prepare the journal entry(s) and defend your reasoning process for the admission of Smith to the partnership assuming Smith invested $800,000 for the ownership interest. Smith paid the money to the partnership for a 50% interest in capital and earnings. The partnership records goodwill.

Reference no: EM13153501

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