Question

At 9/1/2021 the capital balances are Alice 88870 Bob 68327 Carol 36294 David joins the partnership by contributing $28687 for 10% of the capital. Under the bonus method, how much capital does Alice gain as a bonus? Answer: 2911 Under the goodwill method, what is Bob's capital position after David joins?

Answer 1

Using the bonus method the capital of the partnership after the admission of a new partner must be equal to the existing partnership capital plus the amount invested by the new partner.

Capital balance as on 9/01/2021:

Alice. 88870

Bob. 68327

Carol. 36294

Total capital before admission of David s admission= 193491

Investment by David = 28687

David share of capital = 10%

Paid in capital= 193491+28687= 222178

New partner capital = 222178*10% = 22218

Bonus = 28687-22218 = 6469

Bonus allocated to old partners in their capital ratio

Alice share of bonus = 6469*88870/193491 = 2971

Using the goodwill method the capital allocated to the new partner must not be less than the amount invested, and the capital accounts of the existing partners must not be reduced.

Required capital= 28687/10% = 286870

Paid in capital = 222178

Goodwill = 286870-222178= 64692

Goodwill allocated to old partners in their capital ratio

Bob's share of goodwill = 64692*68327/193491= 22844

Bob's capital position after the admission of David= 68327+22844= 91171

SUMMARY

All the necessary information has been provided.