Pam and John are partners in PJ's partnership, having capital balances of $120,000 and$40,000, respectively, and share income in a ratio of 3 : 1. Gerry is to be admitted into the partnership with a 20 percent interest in the business.

Required

First record Gerry's admission into the partnership and then specify and briefly explain why the accounting method used in that situation is GAAP or non-GAAP.

• Gerry invests $50,000, and goodwill is to be recorded.

The Good-Nite partnership agreement includes a provision for profit distribution of interest on capital balances. Unfortunately, the provision does not state the specific capital balance to be used in computing the profit share. What choices of capital balances are available to the partners? What is the preferred capital balance to be used in an interest allocation? Why?

In the GMP partnership (to which Elan seeks admittance), the capital balances of Mary, Gene, and Pat, who share income in the ratio of 6:3:1, are

$$\begin{array}{lr} \text{Mary} & \$240,000 \\ \text{Gene} & \text{120,000} \\ \text{Pat} & \text{40,000} \\ \end{array}$$

Required

Elan is concerned that she may be held liable for the partnership liabilities existing on the day she is admitted to the GMP partnership. She found nothing in the partnership agreement on this item. What does the UPA 1997 state with regard to the liability of a new partner for partnership obligations incurred prior to admission?

In the GMP partnership (to which Elan seeks admittance), the capital balances of Mary, Gene, and Pat, who share income in the ratio of 6:3:1, are

$$\begin{array}{lr} \text{Mary} & \$240,000 \\ \text{Gene} & \text{120,000} \\ \text{Pat} & \text{40,000} \\ \end{array}$$

Required

Prepare journal entries for the admission of Elan if she invests $200,000 for a 20 percent interest. Total capital will be$600,000; the partners use the bonus method.

In the GMP partnership (to which Elan seeks admittance), the capital balances of Mary, Gene, and Pat, who share income in the ratio of 6:3:1, are

$$\begin{array}{lr} \text{Mary} & \$240,000 \\ \text{Gene} & \text{120,000} \\ \text{Pat} & \text{40,000} \\ \end{array}$$

Required

Prepare journal entries for the admission of Elan if she invests $80,000 for a 20 percent interest and goodwill is recorded.