initial shares: Clinton capital share = 50%; profit share = 50% Shelby capital s
ID: 2542096 • Letter: I
Question
initial shares:
Clinton capital share = 50%; profit share = 50%
Shelby capital share = 20%; profit share = 20%
Troy capital share= 30%; profit share = 30%
3) Determin provide their capital balances at year end 2016 e the partnership income that is allocated to each partner in 2016, and In 2017, Troy leaves the partnership. At the time, Clinton's capital is $100,000 and Shelby's capital s $60,000. The assets of the partnership are S300,000 and the liabilities are $50,000. Troy accepts a $120,000 buyout from the partnership to terminate his interest. After Troy departs, Clinton's profit share rises to 5/7 4) Under the bonus method, provide the capital balances for the remaining partners after Troy's withdrawal from the partnership. 5) Do the same for the goodwill method.Explanation / Answer
When a Partner retires (withdraws)
Partner sells his/her share of interest to the other which can use recorded either using Bonus Method or GW Method .
Ans 4. :- Bonus Method
As per Bonus Method :-
Here Troy departs with a cash payment = $120000
But his Capital account was ( Net assets of firm - both partners capital other than Troy) = [ (300000 - 50000) - (100000 + 60000) = $90000
the extra amount paid to Troy is $ 30000.
As per Bonus Method this amount $ 30000 should be brought by Partner in their gaining Ratio.
Revised Capital of Clinton = Old capital + New amount bring by Clinton
= $100000 + ( 30000 * 15/21) = $121428.57
Revised Capital of Shelby = $60000 + ( 30000 * 6/21) = $68571.43
Calculation of Gaining Ratio
Gaining Ration = New Ration - Old Ration
Clinton New ration is 5/7
Shelbly New Ration = 1 - 5/7 = 2/7
Clinton Gain = 5/7 - 5/10 = 15/70
Shelbly Gain = 2/7 - 2/10 = 6/70
Gaining Ratio is 15:6
5. Good Will Method :-
Here we simply record Goodwill with the Excess amount paid to Troy $30000 by Debiting Goodwill account and Crediting Troy's Capital Account.
Goodwill Account Dr. $30000
To Troy's Capital Account $ 30000
( Being Goodwill recognised)
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