In 2018, Knox joins the partnership. At the time, Clinton\'s capital is $120,000
ID: 2542742 • Letter: I
Question
In 2018, Knox joins the partnership. At the time, Clinton's capital is $120,000 and Shelby's capital is S90,000. Knox agrees to contribute S50,000 to the partnership in exchange for 10% of the capital and a 12.5% profit share (the two existing partners would lose their profit shares proportionally, with Clinton receiving 62.5% and Shelby receiving 25% going forward). 6) Under the bonus method, provide the capital balances for all of the partners after Knox joins. 7) Do the same for the goodwill method.Explanation / Answer
When a New Partner Contributes Assets worth more than the percentage being acquired, this difference can be recorded by using bonus method and Goodwill Method.
Capital Balance of Partners after Knox join under Bonus method:
Capital Balance of Partners after Knox join under Goodwill method:
Goodwill method sometime referred as revaluation Method. Calculate the value of the partnership suggested by the incoming partner (incoming partner’s contribution divided by the percent interest in capital acquired).
Equities of the present partners ($120,000 + $90,00) $ 210,000 Investment of New partner $ 50,000 Total equities of the new partnership $ 260,000 Equity of Knox (10% of capital 260,000 x 10%) $ 78,000