Change of partners Assume that Partners A and B each report a Capital Account of

ID: 2586121 • Letter: C

Question

Change of partners Assume that Partners A and B each report a Capital Account of 5525,000. Partner A wans to retire and sell her partnership interest to Partner C for $700,000. Partner B agrees to the sale and admission of Partner C into the partnership at an equal ownership percentage. Record the journal entry on the books of the partnership to reflect the admission of Partner C using both the Bonus Method and the Goodwill Method. Bonus Method: General Journal Description Debit Credit Goodwill Method: General journal Description Debit Credit Partner Capital To record implint Goadw

Explanation / Answer

The admission of a partner by purchase of an interest is apersonal transaction between existing partner and new partner .The price paid is negotiated and determined by individuals involved ;it mayy be equal or different from capital acquired.Any money or other consideration exchanged is the personal property of the participnts and not the property of partnership.

Each partners capital account = $525000 each but c is bringing 700000 as consideration for purchase of A's share.Thus A will recieve 700000 from C and it is not necessary to reflect it in partnership books .Only A share of 525000 to be transferred to C's capital account should be reflected in the books.

Journal entry using bonus method:

(Being C is admitted at a equal ownership percentage)

Journal entry using goodwill method

525000

to B's Capital a/c 0

B;s capital a/c not to be affected by this entry because B has nothing to do with sale of partnership interest by A except to agree with the sale.

Calculation of implied good will:

For 1/2th of share,C has paid 700000 dollars.i.e total alue of firm = 700000*2 = 1,400,000

Total capital account in the books of firm = 525000+525000 = 1050000

Goodwill = 1400000-1050000 = 350000

To record implied Goodwill:

In my opinion,there should not be any implied goodwill when an partnership interest is sold because the implied goodwill has not been acquired by the partnership firm.How ever,according to the given question i have made the entries.

A's capital a/c dr 525000 to C's Capital a/c 525000

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Change of partners Assume that Partners A and B each report a Capital Account of

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