Question

The partnership of Banks, Barlow, Buell and Buford show the following balances in their

Capital accounts:

Banks, capital 150,000

Barlow, capital 150,00

buell, capital 200,000

buford, capital 200,000

total 700,000

Burnside contributes $150,000 in cash to the partners for a 20% interest in the

partnership. Good will is to be recorded. The four original partners share

profits/losses according the the following ratio: 20:20:30:30.

A. Determine the amount of Goodwill inherent in this transaction
B. Prepare the Capital Account Analysis showing all of the detail changes in each
Partners Capital Account Balance as a result of Burnside joining the Partnership
C. Prepare the Journal entry to allocate Goodwill to the Partnership Capital Accounts
D. Prepare the journal entry to set up Burnside's Capital Balance at 20% interest in the partnership.

Answer 1

a) Total goodwill of firm = $1,50,000*100/20 = $ 7,50,000

b) new profit sharing ratio = 4:4:6:6:5

sacrificing ratio = 2:2:7:7

c) journal entry (AMOUNT IN $)

Burnside capital A/C Dr 1,50,000

To Banks capital A/C 16,667

To Barlow capital A/C 16,666

To Buell capital A/C 58,333

To Bufrod capital A/C 58,334

( BEING AMOUNT DISTRIBUTED TO OLD PARTNERS IN THEIR SACRIFICING RATIO)

d) cash A/C DR 1,50,000

To Burnside capital A/C 1,50,000

( BEING IT IS ASSUMED THAT CASH BROUGHT FOR CAPITAL)