ACG 5205 Chap 9

Bonus Method

8,00 = 20,000 Cash - Bonus to original partners

Partnership Equity

• Capital account • A permanent account • Drawing account • A temporary account • Periodically closed to capital accounts

Bonus Method (withdrawal)

80% = 50% + 30%

If the articles of partnership are silent with regard to partnership income distribution to the individual partners, then

partnership income is allocated equally among all partners.

Loss Allocation (2)

Add loss to subtotal remember salaries/ bonuses/ interest are payables. Portion out percentages with new subtotal that includes loss Subtract subtotal from new subtotal (absorb deficiency) to get profit allocation

For Example - Sells Interest to Another Partner

Transfer capital= no revaluement of land

Assume all periodic partnership revenues and expenses have been closed to an Income Summary account. Final closing entries are then needed to

close the partners' drawing accounts to their individual capital accounts. close the Income Summary account by distributing the total profit or loss to the individual partners' capital accounts.

Under the goodwill method for recognizing a partner's intangible contribution

goodwill is recognized as an asset of the partnership to reflect the intangible contribution. the partner deemed to be contributing goodwill is given a capital credit to recognize the asset brought to the partnership.

Under the bonus method for recognizing a partner's intangible contribution

no asset is recorded; only partners' capital accounts are affected.

The statement of partners' capital effectively replaces the statement of__for a corporation

retained earning

Admission of Partner

• Purchases interest from existing partner - transfer capital • Bonus Method • Difference between amounts paid by the new partner and resulting capital interest - allocated among original partners. • Hybrid method: Revalue net assets to fair market value, but do not record goodwill with change allocated among original according to their sharing of profits and losses. Record resulting bonus allocated among original partners. • Goodwill Method • Adjust books to fair market value, including goodwill, with change allocated among all partners according to their sharing of profits and losses • Withdrawing partner's resulting capital balance equals the amount paid for ©Dr. Chula K withdrawal.