Question

he E.N.D. partnership has the following capital balances as of the end of the current year:

Pineda	$	130,000
Adams		110,000
Fergie		100,000
Gomez		90,000
Total capital	$	430,000

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 $125,000 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 $325,000 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

Captial Account of E.N.D Partnership firm: under Goodwill method
	Pineda	Adams	Fergie	Gomez	Total
Capital balances	$ 130,000	$ 110,000	$ 100,000	$ 90,000	$430,000
Goodwill shared between remaining partners (in the profit and loss ratio)(3:3:2:2) $125,000	$ 37,500	$ 37,500	$ 25,000	$ 25,000	$ 125,000
Captial balances of remaining partners	$ 167,500	$147,500	$125,000	$115,000	$ 555,000
Paid to Fergie			$(125,000)		$ (125,000)
Remaining partners capital account balances	$ 167,500	$147,500	$ 0	$ 115,000	$ 430,000

The firms goodwill would be as under:
Paid to Fergie	$125,000
Captial balance	$(100,000)
Goodwill paid to Fergie	$25,000
Percentage ratio of Fergie (2/10=20%)	20%
Firms goodwill ($25,000/20%)	$125,000

Share of firms goodwill shared between all the partners at their profit and loss sharing ratio (3:3:2:2)
Penida ($125,000*3/10)	$          37,500
Adams ($125,000*3/10)	$          37,500
Fergie ($125,000*2/10)	$          25,000
Gomez ($125,000*2/10)	$          25,000
Total goodwill	$        125,000

b.

If Penida is retiring and the company pays $305,000 and the profit sharing ratio is 4:3:2:1
Captial Account of E.N.D Partnership firm: under Bonus method
	Pineda	Adams	Fergie	Gomez	Total
Capital balances	$ 130,000	$110,000	$100,000	$ 90,000	$ 430,000
Sharing of bonus between remaining partners (in the profit and loss ratio)(-:3:2:1) $195,000	$ 195,000	$ (97,500)	$(65,000)	$ (32,500)	$ 0
Capital balance of partners	$ 325,000	$ 12,500	$ 35,000	$ 57,500	$ 430,000
Paid to Pineda	$ (325,000)				$ (325,000)
Captial balances of the remaining partners	$0	$ 12,500	$ 35,000	$ 57,500	$ 105,000

Paid to Penida	$        325,000
Captial balance	$     (130,000)
Bonus paid	$        195,000

Bonus paid is shared between remaining partners on the basis of profit and loss ratio (3:2:1) and capital balances of the remaining partners will be reduced by following amounts:

Adams ($195,000*3/6)	$ 97,500
Fergie ($195,000*2/6)	$ 65,000
Gomez ($195,000*1/6)	$ 32,500
Total bonus distributed	$ 195,000