1-2 Pana and Joma 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. Gamel is to be admitted into the partnership with a 20 percent interest in the business.
Required:
For each of the following independent situations, first record Gamel's admission into the partnership and then specify and briefly explain why the accounting method used in that situation is GAAP or non-GAAP.
a. Gamel invests $50,000, and goodwill is to be recorded.
b. Gamel invests $50,000. Total capital is to be $210,000; the partners use the bonus method.
c. Gamel purchases the 20 percent interest by directly paying Pana $50,000. Gamel is assigned 20 percent interest in the partnership solely from Pana's capital account.
d. Gamel invests $35,000. Total capital is to be $195,000; the partners use the bonus method.
e. Gamel invests $35,000, and goodwill is to be recorded.
f. Gamel invests $35,000. During the valuation process made as part of admitting the new partner, the partnership's inventory is determined to be overvalued by $20,000 because of obsolescence. PJ's partnership uses the lower-of-cost-or-market value method for inventories.
