Question

The E.N.D. partnership has the following capital balances as of the end of the current year: Pineda $ 310,000 Adams 280,000 Fergie 270,000 Gomez 260,000 Total capital $ 1,120,000 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 $312,000 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 $360,000 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? (Do not round your intermediate calculations. Round your final answers to the nearest dollar amounts.)

Answer 1

1) Using goodwill method

Pineda = $310,000 = 3/10 = 30%

Adams =$280,000=3/10 =30%

Fergie = $ 270,000 = 2/10 =20%

Gomez = $260,000=2/10=20%

Fergie retires and is paid $312,000 .

we can use good will method by taking two assumptions such as a) Goodwill traceable to retiring partner in that capital balances of other partners won' change because whole amoutn difference between fairvlaue of retiring partner and capital blance will be treated as goodwill and will be debited to Goodwill account

on the other hand good will is treseable to partnership entity,so Goodwill = $312,000-270,000 = $42,000 . if that is equal to 20% then whole partner ship entity's goodwill = $42,000/20% = $210,000

$210,000 shares between all partners so capital balances of remaining partners partners

Pineda = $310,000 +210,000*30% =$373,000

Adams =$280,000 + 210,000 * 30%=$343,000

Gomez = $260,000 + 210,000*20%=$302,000

2) Using bonus method

Sharing of profits = 4:3:2:1

In bonus method $50,000 ($360,000-310,000) should be paid by existing partners

So capital balances remaining partners

Adams =$280,000 - 50,000*3/6 = $255,000

Fergie = $ 270,000 - 50,000*2/6 =$253,333.33

Gomez = $260,000-50,000*1/6=$251,666.67

I hope this will help you.