Question

Pat, Patti and Patrice manage a law partnership. Each has capital of $150,000 and they share income equally. The partners will admit Patsy as an equal partner for a payment of $100,000.

Please calculate the impact of Patsy's admission using both the bonus method and the goodwill method. If the bonus method is used, how much is the bonus, and who gets it? Where does the bonus come from? If the goodwill method is used, how much is the goodwill and who gets it?

	A.	Bonus of $37,500 belongs to Patsy; goodwill of $50,000 belongs to Patsy.
	B.	Bonus of $37,500 belongs to original partners; goodwill of $37,500 belongs to Patsy.
	C.	Bonus of $50,000 belongs to original partners; goodwill of $37,500 belongs to original partners.
	D.	Bonus of $37,500 belongs to original partners; goodwill of $50,000 belongs to original partners. answer multiple choice!

Answer 1

		Capital
	Pat	$150,000
	Patti	$150,000
	Patrice	$150,000
		$450,000
	Patsy brings	$100,000
	Bonus Method
	total Capital	450000+100000
	total Capital	$550,000
	Since all are equal partners so each one capital should be		550000/4
	Since all are equal partners so each one capital should be		$137,500
	So all 3 existing partners will be $ 12500 each so Patsy will get 12500*3 = $ 37500 as Bonus.
	Goodwill Method
	Existing partners revised ratio will be 25% each since all are equal partners
	and total partners are 4.
	Each one capital for 25%	$150,000
	Total value of business	150000/25%
	Total value of business	$ 600,000.00
	Total capital contributed	$550,000
	Goodwill to be paid to Patsy	$    50,000.00
So Option A is correct.
Bonus of $37500 belongs to Patsy ,goodwill of $50000 belongs to Patsy.