1. Which method of handling entry of a new partner, and exit of retiring partner
ID: 2587837 • Letter: 1
Question
1. Which method of handling entry of a new partner, and exit of retiring partners is preferred by the FASB, and consequently considered generally accepted accountin g principles? For entry of new Exit of Retiring a. bonus method b. goodwill method c. goodwill method d. bonus method goodwill method goodwill method bonus method bonus method 2. From the following capital account activity calculate Peterson's average capital account balance for 2017 Pete Capital 80,000 20,000 8 30,000 6,000 Peterson's average capital balance is a. $84,000 b. $76,000 c. $74,000 d. $109.000Explanation / Answer
1) The correct option is a) For entry of new - Bonus method and For exit of retiring - Goodwill method. According to FASB the preferred method for entry of new partner is Bonus method and exit of retiring partner, the goodwill method is preferred method.
2) Average capital balance is calculated by adjusting for time and different balances during the year.
The capital balances on different dates are as follows:-
1/1/17 80,000 for 3 months
4/1/17 80,000+20,000 = 100,000 for 4 months
8/1/17 100,000-30,000 = 70,000 for 2 months
10/1/17 70,000+6,000 = 76,000 for 3 months
Peterson's Average capital balance for 2017 = (80,000*3/12)+(100,000*4/12)+(70,000*2/12)+(76,000*3/12)
= 20,000+33,333+11,667+19,000 = $84,000
The correct option is a) $84,000.
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