Question

The Tim-Tam-Tom partnership has the following capital balances and profit and loss allocation:
Tim (30% of gains and losses)                     100,000
Tam (20%)                                                           150,000
Tom (50%)                                                          200,000
Tem invests $220,000 in cash, paid to the partnership, for a 20% ownership stake. Using the Goodwill method, what are the goodwill amount to be recognized and Tim’s capital balance, respectively?

		650,000; 220,000;
		650,000; 295,000;
		430,000; 229,000;
		430,000; 295,000;
		None of the answers is correct The Tim-Tam-Tom partnership has the following capital balances and profit and loss allocation: Tim (30% of gains and losses)                     100,000 Tam (20%)                                                           150,000 Tom (50%)                                                          200,000 Tem invests $300,000 in cash, paid to the partnership, for a 20% ownership stake. Using the Bonus method, after the transaction what is Tam’s capital balance? 180,000 300,000 192,000 150,000 None of the answers is correct The Tim-Tam-Tom partnership has the following capital balances and profit and loss allocation: Tim (30% of gains and losses)                     100,000 Tam (20%)                                                           150,000 Tom (50%)                                                          200,000 Tem invests $200,000 in cash, paid to the original partners, for a 20% ownership stake. Using the Goodwill method, what are the goodwill amount to be recognized and Tim’s capital balance, respectively? 550,000; 200,000; 550,000; 265,000; 350,000; 205,000; 350,000; 265,000; None of the answers is correct The Tim-Tam-Tom partnership has the following capital balances and profit and loss allocation: Tim (30% of gains and losses)                     100,000 Tam (20%)                                                           150,000 Tom (50%)                                                          200,000 Tem invests $250,000 in cash, paid to the original partners, for a 20% ownership stake. Using the bonus method, after the transaction what is Tom’s capital balance? 180,000 250,000 255,000 280,000 None of the answers is correct

Answer 1

Solution 1:

Investment by Tem in partnership = $220,000

Tem's share in partnership = 20%

Required capital of partnership using goodwill method = $220,000 / 20% = $1,100,000

Total capital of partnership after joining of Tem = $100,000+ $150,000 + $200,000 + $220,000 = $670,000

Goodwill Amount to be recorded on admission of partner = $1,100,000 - $670,000 = $430,000

Tim's capital balance after admission = $100,000 + ($430,000 *30%) = $229,000

Hence 3rd option is correct.

Solution 2:

Total capital of partnership after admission of Tem = $100,000 + $150,000 + $200,000 + $300,000 = $750,000

Required capital of of tem for 20% interest = $750,000 * 20% = $150,000

Capital invested by Tem = $300,000

Bonus capital invested by Tem = $300,000 - $150,000 = $150,000

Tam's capital balance after admission of Tem = $150,000 + $150,000*20% = $180,000

Hence first option is correct.

Solution 3:

Investment by Tem in partnership = $200,000

Tem's share in partnership = 20%

Required capital of partnership using goodwill method = $200,000 / 20% = $1,000,000

Total capital of partnership after joining of Tem = $100,000+ $150,000 + $200,000 + $200,000 = $650,000

Goodwill Amount to be recorded on admission of partner = $1,000,000 - $650,000 = $350,000

Tim's capital balance after admission = $100,000 + ($350,000 *30%) = $205,000

Hence 3rd option is correct.

Solution 4:

Total capital of partnership after admission of Tem = $100,000 + $150,000 + $200,000 + $250,000 = $700,000

Required capital of of tem for 20% interest = $700,000 * 20% = $140,000

Capital invested by Tem = $250,000

Bonus capital invested by Tem = $250,000 - $140,000 = $110,000

Tom's capital balance after admission of Tem = $200,000 + $110,000*50% = $255,000

Hence 3rd option is correct.