The E.N.D. partnership has the following capital balances as of the end of the c

Question

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

Explanation / Answer

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

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