Question

The E.N.D. partnership has the following capital balances as of the end of the current year: Pineda $ 180,000 Adams 160,000 Fergie 150,000 Gomez 140,000 Total capital $ 630,000 Answer each of the following independent questions: Assume that the partners share profits and losses 3:3:2:2, respectively. Fergie retires and is paid $183,000 based on the terms of the original partnership agreement. If the goodwill method is used, what is the capital balance of the remaining three partners

Answer 1

Goodwill Calculation

Amount paid to Fergie $183,000

Less: Fergie Capital $150,000

Goodwill $33,000

Fergie's share is 20% in Goodwill. Total Goodwill = $33,000 / 20% = $165,000

Calculation of Capital Balance After Fergie's retirement

Pineda Adams Fergie Gomez Total

Opening Balance $180,000 $160,000 $150,000 $140,000 $630,000

Add: Goodwill $49,500 $49,500 $33,000 $33,000 $165,000

(Distributed - 3:3:2:2)

Less: Amount Paid - - ($183,000) - ($183,000)

Balance $229,500 $209,500 - $173,000 $612,000