Question

A partnership has the following account balances: Cash $50,000: Other Assets $600,000: Liabilities $240,000: Nixon, Capital (50 percent of profits and losses) $200,000: Hoover, Capital (20 percent) $120,000; and Polk, Capital (30 percent) $90.000. Each of the following questions should be viewed as an independent situation: a. Grant invests $80,000 in the partnership for an 18 percent capital interest. Goodwill is to be recognized. What are the capital accounts thereafter? b. Grant invests $100,000 in the partnership to get a 20 percent capital balance. Goodwill is not to be recorded. What are the capital accounts thereafter? Capital Balances a Nixon Hoover Polk Grant Nixon Hoover Polk Grant

please explain the calculations

Answer 1

So the following is the details in the question:

Particulars	Nixon	Hoover	Polk
% of sharing before investment	50%	20%	30%
Capital	$200,000	$120,000	$90,000

Now new partner would join, below calculation is for a. part of the question:

Total capital = $410,000

Therefore capital for 18% share = (410,000/100) x 18 = $73800.00.

Goodwill = 80,000 - 73,800= $6,200. Goodwill would be recorded and apportioned between the existing partners in capital ratio, thus new capital would be as follows:-

Particulars	Nixon	Hoover	Polk	Grant
New Capital	$203,024.39	$121,814.63	$91,360.98	$73,800.00

Nixon = old capital + 6,200 (200,000/410,000), similarly for others.

For b. part of the question answer is as follows:

No goodwill would be recognized and thus the cash introduced would directly be added to the partner's capital account (Grant):

Particulars	Nixon	Hoover	Polk	Grant
New Capital	$200,000.00	$120,000.00	$90,000.00	$100,000.00