Portney, Grey, and Ross are partners with capital balances of $80,000, $200,000,
ID: 2488313 • Letter: P
Question
Portney, Grey, and Ross are partners with capital balances of $80,000, $200,000, and $120,000, respectively. Profits and losses are shared in a 3:2:1 ratio. Grey decided to withdraw and the partnership revalued its assets. The value of inventory was decreased by $20,000 and the value of land was increased by $50,000. Portney and Ross then agreed to pay Grey $230,000 for his withdrawal from the partnership.
Required:
Prepare the journal entry to record Grey’s withdrawal under the
A. bonus method.
B. full goodwill method.
Explanation / Answer
Journal entry to record Grey’s withdrawal under the Bonus Method is as follows:
Under the bonus method remaining partners are charged with the amount of the payment that exceeds the book value of the retiring partner’s capital balance.Here Grey's capital balance is $200,000.
So the remaining 30,000 will be charged in the remining two partners.
Assets are revalued as under:
Land 50,000
Inventory 20,000
Portney Capital 15,000
Grey Capital 10,000
Ross Capital 5,000
Now withdrawal entry is
Grey Capital 210,000
Portney Capital 15,000
Ross Capital 5,000
cash 230,000
(for Grey withdrawn)
Journal entry to record Grey’s withdrawal under the Goodwill Method is as follows:
Undee this method partners capital is not reduced and intangible is created.
Grey Capital 210,000
Goodwill 20,000
Cash 230,0000
(For grey withdrawal recorded)