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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
