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kate880229
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Joined: 22 Jan 2012
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Posted: 22 Jul 2012 at 17:21 \| IP Logged

1. The capital accounts of the partnership of Newton, Sharman, and Jackson on June 1, 2010, are presented below with their respective profit and loss ratios.

Newton

$139,200

1/2

Sharman

208,800

1/3

Jackson

96,000

1/6

$444,000

On June 1, 2010, Sidney was admitted to the partnership when he purchased, for $132,000, a proportionate interest from Newton and Sharman in the net assets and profits of the partnership. As a result of this transaction, Sidney acquired a one-fifth interest in the net assets and profits of the firm. Assuming that implied goodwill is not to be recorded, what is the combined gain realized by Newton and Sharman upon the sale of a portion of their interests in the partnership to Sidney.

answer: 43200.. why?

2. (1) Other comprehensive income maybe presented in the S of changes in stockholder's equity

(2) G/L on AFS are disclosed in O.I.C

answer: both false..... why??????

wool1
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Joined: 26 May 2011
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Posted: 22 Jul 2012 at 22:46 \| IP Logged

Goodwill method is not used; therefore, use the bonus method.

Total capital
132,000+444,000=576,000
Sindey receives
20% of 576,000 = 115,200
and I believe the problem is saying the remainder contributed by Sidney goes to Newton and Sharman.

Cash..... 132,000
.........Sidney, capital.....115,200
.........Newton, capital....xxx
.........Sharman, capital...xxx

It doesn't add up to the answer but I may have done it wrong.

afrodude
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Posted: 03 Aug 2012 at 03:36 \| IP Logged

The question tells you that Sidney is purchasing a proportion of interest from Newton and Sharman, which means the total capital of $444,000 does not change. Of the current capital amount, Sidney is purchasing 20%. Therefore, 20% x $444,000 = $88,000, which is the cost of what Sidney is purchasing. However, Sidney is paying to Newton and Sharman $132,000 total for only an $88,000 share of the capital.

$132,000-$88,000 = $43,200 gain on sale of Newton and Sharman's portions that compose the 20% Sidney is purchasing.

wool1
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Joined: 26 May 2011
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Posted: 03 Aug 2012 at 12:40 \| IP Logged

Thanks for clarifying this for me.

I notice it's often the bad questions that gets posted on these forums.

BTW kate, both are True according to my book.

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