Question

Question 23

Ameen, Ibraheem, and Abdulaziz invested to establish a company for Computer Software. They decided to share capital and distributed the profits in equally.  The total capital SR 2,700,000.  Ameen, Ibraheem paid their share inpartnership SR 1,800,000, and Abdulaziz paid SR 600,000 his full share.

The journal entry of the initial investments under Goodwill Method was.

	A.	Questions Dr Cr C Investment                                                                                                               Ameencapital                          Ibraheem Capital                      Abdulaziz Capital                            Goodwill         2,700,000 900,000 9000,000 600,000 300,000
	B.	Questions Dr Cr D Cash                                                                                    Ameen capital                          Ibraheem Capital                      Abdulaziz Capital              Goodwill         2,700,000 900,000 900,000 600,000 300,000
	C.	Questions Dr Cr B Investment         Goodwill                                                                                  Ameen capital                          Ibraheem Capital                      Abdulaziz Capital           2,400,000 300,000   1,000,000 1,000,000 700,000
	D.	Questions Dr Cr A Cash         Goodwill                                                                           Ameen capital                          Ibraheem Capital                      Abdulaziz Capital           2,400,000 300,000   900,000 900,000 900,000

Answer 1

Total capital of firm given= SR 2700000

Combined capital of all partners= SR 2400000

Difference is Goodwill.

Goodwill= 2700000-2400000= SR 300000

Journal entry-

Cash                       Dr        2400000

Goodwill                  Dr         300000

      To Ameen Capital                               900000

      To Ibraheem Capital                            900000

      To Abdulaziz Capital                           900000

Option D is correct.