Which of the following best describes the accounting for partnership formation w

Question

Which of the following best describes the accounting for partnership formation when partners are assigned balances that do not equal their capital contributions?

A. The partnership can apply either the “bonus method” or the “goodwill method” to account for the contribution without restriction.

B. The “bonus method” relates to the recognition of an intangible asset upon formation of the partnership.

C. The “bonus method” can be used even in the presence of an intangible asset if the partners agree.

D. This scenario is not possible since all capital accounts must be proportional to the relative contributions of the partners.

Explanation / Answer

The correct answer is option (A). The partnership can apply either the “bonus method” or the “goodwill method” to account for the contribution without restriction.

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