11.A ASSIGNMENT OF INCOME—YEAR ONE
WINSTON DURHAM SALEM TOTAL
Interest—10% of
beginning capital ..…..….…. $11,000 $ 8,000 $11,000 $30,000
Salary……………..….…..….….…... 20,000 -0- 10,000 30,000
Allocation of remaining loss
($80,000 divided on a 5:2:3 basis) (40 ,000) (16 ,000) (24 ,000)
(80,000)
Totals ………….…..….….… $(9 ,000) $ (8 ,000) $ (3 ,000)
$(20,000)
STATEMENT OF CAPITAL—YEAR ONE
WINSTON DURHAM SALEM TOTAL
Beginning capital ……….….…... $110,000 $80,000 $110,000
$300,000
$250,000
11. (continued)
ASSIGNMENT OF INCOME—YEAR TWO
WINSTON DURHAM SALEM TOTAL
Interest—10% of
(15,000)
Totals ………….…..….….… $21 ,600 $3 ,200 $15 ,200 $ 40 ,000
STATEMENT OF CAPITAL—YEAR TWO
WINSTON DURHAM SALEM TOTAL
Beginning capital (above) ...... $ 91,000 $62,000 $ 97,000
$260,000
12.A Costello receives a $10,000 bonus ($100,000 less $90,000 capital balance).
13.D Clark receives an additional $10,000. Because Clark receives 20 percent of
profits and losses, this allocation indicates total goodwill of $50,000.
20% of Goodwill = $10,000
Goodwill = $10,000 ÷ .20 = $50,000
Goodwill 50,000
The above entry raises Manning’s capital from $130,000 to $145,000.
14. B Under the bonus method, Clark’s excess payment is deducted from the
remaining partners’ capital accounts according to their relative profit and loss
ratios, 3:3:2. Manning’s balance is then $126,250 = $130,000 – $3,750.
15.A The implied value of the company is $900,000 ($270,000 ÷ 30%). Because
the money is going to the partners rather than into the business, the capital
total is $490,000 before realigning the balances. Hence, goodwill of
partnership to Darrow for a capital balance of $270,000.
16. D Because the money goes into the business, total capital becomes $740,000
($490,000 + $250,000). Darrow is allotted 30 percent of this total or
17.(10 Minutes) (Compute capital balances under both goodwill and bonus
methods)
a. Goodwill Method
Implied value of partnership ($80,000 ÷ 40%) …..….…... $200,000
Total capital after investment ($70,000 + $40,000 + $80,000) 190,000
Goodwill ………..………..……….………..………..……………..….. $ 10,000
Lear, capital (payment) (40% of total capital) ............... $ 80,000
b. Bonus Method
Total capital after investment ($70,000 + 40,000 + $80,000) $190,000
Ownership portion—Lear ……………………..………..……….. 40%
Lear, capital ….………..………..………..……………..…..….….… $ 76,000
Bonus payment made by Lear ($80,000 – $76,000)..….. $ 4,000
18.(15 Minutes) (Prepare journal entries to record admission of new partner under
both the goodwill and the bonus methods)
Part a.
Total capital is $300,000 ($85,000 + $60,000 + $55,000 + $100,000) after the
new investment. As Sergio’s portion is 25 percent, this partner’s capital
balance would be $75,000. Because $100,000 was paid, a bonus of $25,000
is given to the three original partners based on their profit and loss ratio:
Tiger—$12,500 (50%), Phil—$7,500 (30%), and Ernie—$5,000 (20%).
Cash ……..………..……….………..………..………..……….…. 100,000
Sergio, capital ………….……………..….…..….….….…. 75,000
Tiger, capital ……..………..………..………….….…..…... 12,500
Part b.
Total capital is $260,000 ($85,000 + $60,000 + $55,000 + $60,000) after the
new investment. As Sergio’s portion is 25 percent, this partner’s capital
Cash ……..………..……….………..………..………..……….…. 60,000
Tiger, capital ……..………..………..……….………..…………. 2,500
Part c.
Total capital is $272,000 ($85,000 + $60,000 + $55,000 + $72,000) after the
new investment. However, the implied value of the business based on the
$4,800 (30%), and Ernie—$3,200 (20%).
Goodwill …………..………..………..……..….….….….…..…. 16,000
Tiger, capital ……..………..………..………….….…..…... 8,000
Phil, capital …………………….………..………….….….… 4,800
19. (16 Minutes) (Determine capital balances after admission of new partner using
both goodwill and bonus methods)
Part a.
Total capital is $490,000 ($200,000 + $120,000 + $90,000 + $80,000) after the
new investment. However, the implied value of the business based on the
G’s Investment = .18 ($200,000 + $120,000 + $90,000 + G’s Investment)
$80,000 + Goodwill = .18 ($410,000 + $80,000 + Goodwill)
The above goodwill balance indicates that Grant’s total investment is
$90,000 (cash of $80,000 and goodwill of $10,000). A $90,000 contribution
CAPITAL BALANCES:
Nixon ……….………..………..……….……….….…..….….. $200,000
Hoover ………………..………..………..………..…………… 120,000
Polk ……..………..……….……………….….….….….…... 90,000
Grant ……….………..………..…………..…..….….….….… 90,000
Part b.
Total capital is $510,000 ($200,000 + $120,000 + $90,000 + $100,000) after
the new investment. As Grant’s portion is to be 20 percent, this partner’s
CAPITAL BALANCES
Original Investment Bonus Total
Nixon …..….….…..… $200,000 $(1,000)$199,000
Hoover ………………. 120,000 (400) 119,600
20.(10 Minutes) (Record admission of new partner and allocation of new income)
Part a.
Total capital is $167,000 ($70,000 + $60,000 + $37,000) after the new
investment. However, the implied value of the business based on the new
Robbins—$3,600 (20%).
Goodwill…………………..……….………..…………….…... 18,000
Prince, capital ………..………..……….…..….….….. 14,400
Robbins, capital ……………………..………..…..….. 3,600
Cash ……..………..……….……………….….….….….…... 37,000
Jeffrey, capital …………..………..………..………….. 37,000
Part b.
Prince Robbins Jeffrey Total
21. (5 Minutes) (Allocation of income to partners)
Jones King Lane Total
Bonus (20%) ………….…………. $18,000 $ -0- $ -0- $18,000
Interest (15% of average capital) 15,000 30,000 45,000 90,000
22. (15 Minutes) (Allocate income and determine capital balances)
ALLOCATION OF INCOME
Purkerson Smith Traynor Totals
Interest (10%) $ 6,600 (below) $ 4,000 $ 2,000 $12,600
Salary 18,000 25,000 8,000 51,000
Remaining income (loss):
$ 23,600
(12,600)
CALCULATION OF PURKERSON’S INTEREST ALLOCATION
Balance, January 1—April 1 ($60,000 × 3) $180,000
Balance, April 1—December 31 ($68,000 × 9) 612,000
Total …………………..………..……….………..………..………….…. $792,000
Interest allocation (above) …………….…………….….….…... $ 6,600
STATEMENT OF PARTNERS’ CAPITAL
Purkerson Smith Traynor Totals
Beginning balances …………… $60,000 $40,000 $20,000
$120,000
Additional contribution ......... 8,000 -0– -0- 8,000
23. (30 Minutes) (Allocate income for several years and determine ending capital
balances)
INCOME ALLOCATION—2014
Left Center Right Total
Interest (12% of beginning capital) $2,400 $ 7,200 $ 6,000 $ 15,600
Remaining income/loss:
$(30,000)
(15,600)
STATEMENT OF PARTNERS’ CAPITAL—DECEMBER 31, 2014
Left Center Right Total
Beginning balances ….….…. $20,000 $60,000 $50,000 $130,000
INCOME ALLOCATION—2015
Left Center Right Total
Interest(12% of beginning capital above) *$566 $3,888 $3,946 $ 8,400
Salary ……………….…..….…... 12,000 8,000 -0- 20,000
Remaining income/loss:
$20,000
(8,400)
(20 ,000)
*Rounded
STATEMENT OF PARTNERS’ CAPITAL—DECEMBER 31, 2015
Left Center Right Total
Beginning balances (above) $ 4,720 $32,400 $32,880 $70,000
Additional investment ........ -0- -0- 12,000 12,000
23. (continued)
INCOME ALLOCATION—2016
Left Center Right Total
Interest (12% of beginning capital
above)* ………………..…….. $ 572 $ 3,611 $4,457 $ 8,640
Salary ……………….….….…..… 12,000 8,000 -0- 20,000
Remaining income:
$40,000
(8,640)
(20 ,000)
*Rounded
STATEMENT OF PARTNERS’ CAPITAL—DECEMBER 31, 2016
Left Center Right Total
Beginning balances (above) $ 4,766 $30,088 $37,146 $72,000
Income allocation 14,844 16,155 9,001 40,000
24. (12 Minutes) (Determine capital balances after retirement of a partner using
both the goodwill and the bonus approaches)
a. Fergie receives $30,000 more than her capital balance. Because Fergie is
assigned 20 percent of all profits and losses, this extra allocation indicates
total goodwill of $150,000, which must be split among all partners.
CAPITAL BALANCES AFTER WITHDRAWAL
Original Balance Goodwill Withdrawal Final Balance
Pineda $230,000 $45,000 $275,000
Adams 190,000 45,000 235,000
b. A $50,000 bonus is paid to Pineda ($280,000 is paid rather than the $230,000
capital balance). This bonus is deducted from the three remaining partners
according to their relative profit and loss ratio (3:2:1). A reduction of 50
25. (10 minutes) (Hybrid method for recording a partner withdrawal)
Because the continuing partners do not wish to record goodwill, a hybrid approach
Building 40,000
Matteson, capital 12,000
Richton, capital 20,000
Cash 120,000