Tamer, Lune and Nazra have a partnership. Their capital balances are $180,000, $260,000 and $300,000, respectively....

Tamer, Lune and Nazra have a partnership. Their capital balances are $180,000, $260,000 and $300,000, respectively. They share profits and losses 25%, 35% and 40%, respectively. Rana wants to become a partner with a 10 percent share in partnership capital with a $120,000 cash contribution to the partnership. The fair market value for the partner is equal to book values Required: 1- Calculate Tamer, Lune and Nazra and Rana ending capital balances under the Bonus Method and Goodwill Method. 2- Journalize the required entries under both methods

Solutions

Expert Solution

1. Calculation of ending Capital balances

Bonus Method

	Tamer	Lune	Nazra	Rana
Opening Capital balance	180000	260000	300000
Add: Bonus* 25:35:40	8500	11900	13600
Add: Contri. Less Bonus				86000

Ending Capital balance	188500	271900	313600	8600

*Bonus= New partner contribution-(Increased capital balance*10%)

= 120000- ( 860000*10%)

=34000

Goodwill Method

	Tamer	Lune	Nazra	Rana
Opening Capital balance	180000	260000	300000
Add: Capital Contribution				120000
Add: *Goodwill25:35:40	85000	119000	136000
Ending Capital balances	265000	379000	436000	120000

Goodwill = ((120000/10)*100 )- Total Capital

=1200000-860000 =340000

2. Journal entry

Bonus method

	Debit	Credit
Cash	120000
Tamer		8500
Lune		11900
Nazra		13600
Rana		86000

Goodwill Method

	Debit	Credit
Cash	120000
Goodwill	340000
Tamer		85000
Lune		119000
Nazra		136000
Rana		120000

ekkarill92 answered 1 year ago

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