The E.N.D. partnership has the following capital balances as of the end of the c

Question

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

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 $211,000 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 $335,000 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

Pineda $ 210,000 Adams 190,000 Fergie 180,000 Gomez 170,000 Total capital $ 750,000

Explanation / Answer

(a) caliculation of capital balances of the remaining 3 oartners :

good will :

good will = amount paid by fergie - fergie capital

   = $211000 - $180000

   = $31000

as per the profit sharimg ratio , mr fergle is assigned 20% of all profits and losses

if the excess amount of good will shared by all partners as their ratios 3:3:2:2

total good will = $31000 / 20%

   = 31000*100/20

   = $ 155000

good will sharing = 46500 :46500: 31000 : 31000

capital balances after fergle withdrawal

(b)calculation of capital balances of the remaining 3 partners :

mr pineda get a more then his capital , it will be treated as a bonus

bonus = 335000 - 210000 = $ 125000

the remaining partners will deduct the bonus as their profit and loss ratio i.e 3:2:1

deductable bonus shared to each partner :

1) adams = 125000 *3/6 = 62500

now the capital balnce of adams is = 190000 - 62500

   = $ 127500

2) fergle = 125000* 2/6 = 41625

now the capital balance of fergle is = 180000 - 41625

   = $ 138375

3) gomez = 125000* 1/6 = 20875

now the capital balance of gomez is = 170000 - 20875

   = $ 149125

the capital balences of 3 patners will reduced

the capital balances are :

adams = $ 127500

fergle = $ 138375

gomez = $ 149125

opening balance good will withdrawal remaining balance plneda 210000 46500 256500 adams 190000 46500 236500 fergle 180000 31000 211000 0 gomez 170000 31000 201000 total 694000

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