Lear is to become a partner in the WS partnership by paying $80,000 in cash to the business.

At present, the capital balance fo

a. If the goodwill method is applied, what will the three capital balances be following the payment by Lear?
b. If the bonus method is applied, what will the three capital balances be following the payment by Lear?

GW B
H 77,000 72,800
M 43,000 41,200
L 80,000 76,000

Goodwill Method: 
In this method, goodwill is calculated of the partnership firm and apportioned to the other partner's capital in their profit shar
Goodwill is the intangible worth of the business due to its long-standing relationship with its stakeholders and the brand it com

In this question:
Existing Capital: H= $70,000 M= $40,000 Total= $110,000 
L wants to buy in 40% stake for $80,000 
Value of the Capital of the new firms= $80,000 /.40 = $200,000 
So, Lear investment values the firm at $200,000 
Paid in capital= $110,000 (Exisitng) + $80,000 (New) = $190,000 
Goodwill= Value of the firm - Paid in Capital
Goodwill= $200,000 - $190,000 = $10,000
This goodwill is apportioned to the old partners in the existing profit-sharing ratio ie 7:3
Therefore the Goodwill of $10,000 would be distributed as $7,000 to H and $3,000 to M and added to their capital accounts.

Cap Bonus Capital Profit bonus

Bonus Method

H 70,000 0.37 0.7 2,800

M 40,000 0.21 0.3 1,200
total 190,000

L 80,000 0.40
32,000 L invesment
76,000 capital received
4,000 bonus
ent, the capital balance for Hamlet is $70,000 and for MacBeth is $40,000. Hamlet and MacBeth share profits on a 7:3 basis. Lear is acquiri

capital in their profit sharing ratio.

ders and the brand it commands in the market. It is also defined as the excess value the firm commands over its paid-in capital

o their capital accounts.

s on a 7:3 basis. Lear is acquiring 40 percent of the new partnership.

er its paid-in capital

The E.N.D. partnership has the following capital balances as of the end of the current year:
profits share
Pineda 230,000 0.3 57,000 173,000
Adams 190,000 0.3 57,000 133,000
Fergie 160,000 0.2 38,000 122,000
Gomez 140,000 0.2 38,000 102,000
Total capital 720,000 190,000 530,000

Answer each of the following independent questions:

a. Assume that the partners share profits and losses 3:3:2:2, respectively. Fergie retires and is paid $190,000 based on the term

Paraticular Amount
Amount paid to F 190,000
Less: F's capital alance at the en dof year -160,000
Goodwill paid to F 30,000
F's share in firm's profit and losses (2/(3+3+2+2)) 0.2
Firm's goodwill (30,000/20%) 150,000

Particular P A F G
Exisitn Capital Balance 230,000 190,000 160,000 140,000
Add: goodwill chare in 3.3.2.2 45,000 45,000 30,000 30,000
new cap bal' 275,000 235,000 190,000 170,000
less amount paid to F (190,000)
capital bal of remaining partn 275,000 235,000 0 170,000

b. Assume that the partners share profits and losses 4:3:2:1, respectively. Pineda retires and is paid $280,000 based on the ter

Paraticular Amount
Amount paid to P 280,000
Less: P's capital balance -230,000
Bonus paid to P 50,000

0.6 0.3 0.2 0.1 0.4

Particular A F G P
Exisitn Capital Balance 190,000 160,000 140,000 230,000
Less: bonus (25,000) (16,667) (8,333)
new cap bal' 165,000 143,333 131,667
90,000 based on the terms of the original partnership agreement. If the goodwill method is used, what is the capital balance of the remain

280,000 based on the terms of the original partnership agreement. If the bonus method is used, what is the capital balance of the remaini
e capital balance of the remaining three partners?

capital balance of the remaining three partners?  (Do not round your intermediate calculations. Round your final answers to the nearest d
final answers to the nearest dollar amounts.)
A local partnership is liquidating and has only two assets (cash of $10,000 and land with a cost of $35,000). All partnership liab

Brown, capital (40%) 25,000

Fish, capital (30%) 15,000
Stone, capital (30%) 5,000

a. If the land is sold for $25,000, how much cash does each partner receive in a final settlement?

0.4 0.3 0.3

Brown Fish Stone
Cap Bal 25,000 15,000 5,000
Loss on sale of land -4000 -3000 -3000
cahs dist 21,000 12,000 2,000

b. If the land is sold for $15,000, how much cash does each partner receive in a final settlement?

0.4 0.3 0.3

Brown Fish Stone
Cap Bal 25,000 15,000 5,000
Loss on sale of land -8000 -6000 -6000
adjusted balances 17,000 9,000 -1,000
potential loss from Ston'es -571 -429 1000
cash distribution 16,429 8,571 0

c. If the land is sold for $5,000, how much cash does each partner receive in a final settlement?

0.4 0.3 0.3

Brown Fish Stone
Cap Bal 25,000 15,000 5,000
Loss on sale of land -12000 -9000 -9000
adjusted balances 13,000 6,000 -4,000
potential loss from Ston'es -2286 -1714 4000
cash distribution 10,714 4,286 0
t of $35,000). All partnership liabilities have been paid. All partners are personally insolvent. The partners have capital balances and share
ave capital balances and share profits and losses as follows.
A partnership currently holds three assets: cash, $10,000; land, $35,000; and a building, $50,000. The partnership has no liabil

Ace, capital 25,000

Ball, capital 28,000
Eaton, capital 20,000
Lake, capital 22,000

Cash 10,000
Land 35,000
Building 50,000
Expenses -5,000

The partners share profits and losses as follows: Ace (30 percent), Ball (30 percent), Eaton (20 percent), and Lake (20 percent).

0.3 0.3 0.2 0.2

Ace Ball Eaton Lake
Maximum losses on land +building -25,500 -25,500 -17,000 -17,000
Estimated Liq Exp -1500 -1500 -1000 -1000
Potential balances -2,000 1,000 2,000 4,000
Potential loss from Ace 2000 857.1 571.4 571.4
cash distribution 0 143 1,429 3,429
The partnership has no liabilities. The partners anticipate that expenses required to liquidate their partnership will amount to $5,000. Cap

rcent), and Lake (20 percent). If a preliminary distribution of cash is to be made, what is the amount of safe payment that can be made to
hip will amount to $5,000. Capital balances are as follows:

payment that can be made to each partner?