Question

If a new partner pays more than book value for his investment in a partnership, which of the following is NOT an option in accounting for his admission on the books of the partnership?

A. Assign a bonus to the prior partners
B. Record unrecognized goodwill and allocate it to the prior partners
C. Record no revaluations, bonus nor goodwill
D. Revalue net assets up to market and allocate to prior partners

Answer 1

When a new partner pays more than book value, several accounting options are available, including assigning a bonus, recording unrecognized goodwill, and revaluing net assets.

Step-by-step explanation:

When a new partner pays more than the book value for their investment in a partnership, there are several options for accounting for their admission on the books. The options are:

1. Assign a bonus to the prior partners: This involves allocating a portion of the excess payment to the existing partners as a bonus.
2. Record unrecognized goodwill and allocate it to the prior partners: This involves recording the excess payment as goodwill on the partnership's books and then allocating it to the existing partners.
3. Revalue net assets up to market and allocate to prior partners: This involves revaluing the partnership's assets and liabilities to their market values and allocating any increase in value to the existing partners.

Therefore, the answer is Option C: Record no revaluations, bonus nor goodwill as this is not a valid option for accounting for the new partner's admission.