E 16-7 Recording new partner investment The capital accounts of the Fax and Bel partnership on September 30, 2016, were: Fax capital (75% profit) $140,000 Bel capital (25% profit) 60,000 Total capital $200,000 On October 1, Rob was admitted to a 40 percent interest in the partnership when he purchased 40 percent of each existing partner’s capital for $120,000, paid directly to Fax and Bel. Required Determine the capital balances of Fax, Bel, and Rob after Rob’s admission to the partnership if goodwill is not recorded. Determine the capital balances of Fax, Bel, and Rob after Rob’s admission to the partnership if goodwill is recorded, assuming that the book value and fair value of recorded assets are equal.
Partnership Accounting
A partnership is a kind of arrangement between two or more people whereby they agree to manage the business operations and share its profits and losses in an agreed ratio between them. The agreement that is drafted and signed by the partners of the firm is termed as partnership deed and contains various important clauses agreed between the partners such as profit/loss sharing, interest on capital, remuneration allocation of each partner, drawings, admission of a new partner, etc.
Partner Admission and Withdrawal
A partnership is a kind of arrangement between two or more people whereby they agree to manage the business operations and share its profits and losses in an agreed ratio between them. The agreement that is drafted and signed by the partners of the firm is termed as a partnership deed and contains various important clauses agreed between the partners such as profit/loss sharing, interest on capital, remuneration allocation of each partner, drawings of a partner, etc.
E 16-7 Recording new partner investment
The capital accounts of the Fax and Bel
|
Fax capital (75% profit) |
$140,000 |
|
Bel capital (25% profit) |
60,000 |
|
Total capital |
$200,000 |
On October 1, Rob was admitted to a 40 percent interest in the partnership when he purchased 40 percent of each existing partner’s capital for $120,000, paid directly to Fax and Bel.
Required
-
Determine the capital balances of Fax, Bel, and Rob after Rob’s admission to the partnership if
goodwill is not recorded. -
Determine the capital balances of Fax, Bel, and Rob after Rob’s admission to the partnership if goodwill is recorded, assuming that the book value and fair value of recorded assets are equal.
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