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For example, there are 3 ways to account the addition of new partner to a partnership.
Bonus credited to original partners
Goodwill credited to original partners
Revaluation of current assets
bonus or goodwill credited to new partner
Here’s a question I got totally tricked:
Max Blau and Harry Rubi are partners who share profits and losses in the ratio of 6:4, respectively. On May 1, their respective capital accounts were as follows:
Blau
$60,000
Rubi
50,000
On that date, Joe Lind was admitted as a partner with a one-third interest in capital and profits for an investment of $40,000. The new partnership began with total capital of $150,000. Immediately after Lind’s admission, Blau’s capital should be
$50,000
Submit $60,000
Graded Submit $46,000
Correct Submit $54,000
This answer is correct.
Following the entrance of Lind, the partnership began with total capital of $150,000, the sum of the capital balances of Blau and Rubi and Lind’s investment. Thus, no goodwill was recognized. Lind received a one-third interest, and his capital balance must be credited for $50,000 ($150,000 Ă— 33 1/3%). But Lind contributed only $40,000, so the $10,000 bonus ($50,000 – $40,000) must be allocated to the existing partners in the ratio of 6:4. The result will be debits to the capital accounts of Blau and Rubi of $6,000 ($10,000 Ă— 60%) and $4,000 ($10,000 Ă— 40%), respectively. Consequently, immediately after Lind’s admission, Blau’s capital is $54,000 ($60,000 – $6,000).I got totally tricked by the “one third”. I used 40,000 to divide 1/3 to get 120,000. Then I thought there is a goodwill of 30,000 so I allocated goodwill to Blau and Rubi. Instead, the answer reveals it uses the bonus method.
How do I distinguish the above methods? Really trial and error of all the methods?
FAR-80AUD-77
REG-75
BEC-82
I'm done done!
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