long term partners, Pop, Ping and Pam have capital balances of $60,000, $45,000

Question

long term partners, Pop, Ping and Pam have capital balances of $60,000, $45,000 and $30,000, respectively. They share in profits and losses 50%-to-30%-to-20%, respectively. All assets are valued fairly. Pam decides to retire from the partnership. Calculate the remaining partner's capital balances after Pam withdrawls under the following situations. a. Pam sells the interest to Ping for $25,000. b. Pam sells the interest to the partnership for $25,000; bonus method used. c. Pam sels the interest to the partnership for $40,0000; goodwill attributable only to the exiting partner is recorded.

Explanation / Answer

a. Pam sells the interest to Ping for $25,000. mmddyy Pam Capital Acct Dr 25,000 Ping Capital Acct Cr 25000 (Cash paid by Pam is of no significance. Only PAM's capital is txfered to Ping) b. Pam sells the interest to the partnership for $25,000; bonus method used. Total capital = 60000+45000+30000 = 135,000 Pam's Interest is 20%. So 5000 will be shared between Pop & Ping in 5:3 ratio So POP will get 5000*(5/8) = $3,125 & Ping will get 5000*(3/8) = $1,875 mmddyy Pam capital Acct Dr 30000 Cash Cr 25000 POP Capiatl Acct Cr 3125 Ping Capital Acct Cr 1875 c. Pam sels the interest to the partnership for $40,0000; goodwill attributable only to the exiting partner is recorded. PAM Capital Acct Dr 40000 Cash Cr 40000 Goodwill (10000/20%) Dr 50000 Pop Capital Acct Cr 25000 Ping Capital Acct Cr 15000 Pam Capital Acct Cr 10000

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