Question

The E.N.D. partnership has the following capital balances as of the end of the current year: Pineda $ 320,000 Adams 280,000 Fergie 250,000 Gomez 230,000 Total capital $ 1,080,000

a. Assume that the partners share profits and losses 3:3:2:2, respectively. Fergie retires and is paid $305,000 based on the terms of the original partnership agreement. If the goodwill method is used, what is the capital balance of the remaining three partners?

Assume that the partners share profits and losses 4:3:2:1, respectively. Pineda retires and is paid $350,000 based on the terms of the original partnership agreement. If the bonus method is used, what is the capital balance of the remaining three partners? (Do not round your intermediate calculations. Round your final answers to the nearest dollar amounts.)

Answer 1

a) Under goodwill method, the difference between partners investment and book value of capital interest purchased shall be goodwill and will be shown as intangible asset.

now, Goodwill = $305000 - $ 250000 = $ 55000 shown as goodwill in books.

Capital balance of Pineda $320000 , adams $ 280000 & gomez $ 230000

b) under bonus method , the difference between partners investment and book value of capital interest purchased shall be bonus and it will be distributed betweem remaining partners.

Bonus = $ 350000 - $ 320000 = $ 30000 distributed among remaining partners in the ratio 3:2:1

capital balance are as follows:

Adams = $320000 + $ 15000 = $335000

fergie = $250000 + $ 10000 = $260000

gomez = $230000 + $ 5000 = $235000