Homework SourseThe END partnership has the following capital balances as of
The E.N.D. partnership has the following capital balances as of the end of the current year:
Answer each of the following independent questions:
Assume that the partners share profits and losses 3:3:2:2, respectively. Fergie retires and is paid $211,000 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 $335,000 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?
| Pineda | $ | 210,000 |
| Adams | 190,000 | |
| Fergie | 180,000 | |
| Gomez | 170,000 | |
| Total capital | $ | 750,000 |
| |
Solution
SOLUTION
(A) Goodwill Method
Calculate the firm\'s Goodwill as follows-
Firm\'s goodwill is $155,000. It will be shared among the partners in their profit and loss sharing ratio.
Capital balances-
(B) Bonus Method
Calculate the amount of Bonus paid to P-
Bonus paid to P is $125,000. It will be deducted from the remaining partner\'s capital balances in their profit and loss sharing ratio.
Capital balances-
| Particulars | Amount ($) |
| Paid to F | 211,000 |
| Less: F\'s capital balance at the end of the year | (180,000) |
| Goodwill paid to F | 31,000 |
| F\'s share in the firm\'s profit and losses (2/(3+3+2+2)= 20%) | 20% |
| Firm\'s Goodwill (31,000/20%) | 155,000 |
