Question

please help with both parts.

14.12 Retirement Effects on Partnership Balance Sheet and Income Urban Tech is a na providing technology services to local businesses. Its balance sheet is as follows: Cash... Receivables ............... Supplies ............ Equipment, net......... Building, net.......... Land. $ 340,000 100,000 25,000 450,000 975,000 300,000 $2,190,000 Accounts payable........... Loans payable ..... Lopez, capital. Martinez, capital..... Nunez, capital. ....... $ 125,000 500,000 90,000 650,000 825,000 Total assets .......... Total liabilities and capital .... $2,190,000 Partners Lopez, Martinez, and Nunez share income in a 2:4:4 ratio. Lopez decides to leave the partner- ship, and the partnership agrees to pay Lopez $300,000. Partnership assets have fair values as follows: supplies, $30,000; equipment, $500,000; building, $1,000,000; land, $280,000. Other partnership assets and liabilities are reported at amounts approximating fair value. Required a. Present the partnership balance sheet after Lopez' retirement, in each of the following situations 1. The bonus method is used. 2. The partial goodwill approach is used, and the partnership's identifiable assets are revalued to fair value. 3. The full goodwill approach is used, and the partnership's identifiable assets are revalued to fa value. b. Calculate the impact of each approach on next year's partnership income before distribution supplies will be used next year, the equipment has a 5-year life, and the building has a 20-year straight-line. There is no goodwill impairment. ling has a 20-year life, 144

someone else may know it.

Answer 1

1)
Computation of partners' share in revaluation of assets
	Revalued Value	Book Value	Gains
Cash	$340,000	$340,000	$0
Receivables	$100,000	$100,000	$0
Supplies	$30,000	$25,000	$5,000
Equipment,net	$500,000	$450,000	$50,000
Building,net	$1,000,000	$975,000	$25,000
Land	$280,000	$300,000	($20,000)
Total assets	$2,250,000	$2,190,000	$60,000
Accounts payable	($125,000)	($125,000)	$0
Loans payable	($500,000)	($500,000)	$0
Net assets	$1,625,000	$1,565,000	$60,000
Revaluation gains to be distribured among the partners in their income sharing ratio
Lopez	$ 60,000 * 2/10		$12,000
Martinez	$ 60,000 * 4/10		$24,000
Nunez	$ 60,000 * 4/10		$24,000
Partner's capital account after revaluation
Lopez	$102,000
Martinez	$674,000
Nunez	$849,000
Computation of goodwill paid to the Lopez on retirement
Amount paid to Lopez	$300,000
Less:
Capital of Lopez	$102,000
Goodwill paid	$198,000
a)
Cash	$40,000	Accounts payable	$125,000
Receivables	$100,000	Loans payable	$500,000
Supplies	$30,000
Equipment,net	$500,000	Martinez, capital	$575,000
Building,net	$1,000,000	Nunez, capital	$750,000
Land	$280,000
Total assets	$1,950,000	Total liabilities and capital	$1,950,000
Note-
Under bonus method,the excess payment is treated as a bonus to the retiring partner.
The cost of bonus is shared by the remaining partners in their income sharing ratio
which existed before the partner retired
Computation of bonus paid to Lopez
Amount paid to Lopez	$300,000
Less:
Capital of Lopez	$102,000
Bonus paid	$198,000
Contribution by Martinez and Nunez in sharing the cost of bonus
Income sharing ratio = 4:4 ~ 1:1
Contribution of Martinez = $ 198,000 * 1/2 = $ 99,000
Contribution of Nunez = $ 198,000 * 1/2 = $ 99,000
Entries made on retirement of Lopez
Account Title	Debit	Credit
Martinez Capital	$99,000
Nunez Capital	$99,000
Lopez Capital	$102,000
Cash		$300,000
b)
Partial goodwill method
Cash	$40,000	Accounts payable	$125,000
Receivables	$100,000	Loans payable	$500,000
Supplies	$30,000
Goodwill	$198,000
Equipment,net	$500,000	Martinez, capital	$674,000
Building,net	$1,000,000	Nunez, capital	$849,000
Land	$280,000
Total assets	$2,148,000	Total liabilities and capital	$2,148,000
Under partial goodwill method,goodwill is recorded only for the retiring partner
Entries made on retirement of Lopez
Account Title	Debit	Credit
Goodwill	$198,000
Lopez Capital	$102,000
Cash		$300,000
c)
Full Goodwill method
Under full goodwill approach, the total goodwill as valued at the time of retirement is
recorded in the books.
Share of goodwill paid to Lopez in his income sharing ratio			$198,000
Income sharing ratio of Lopez			2/10
Total goodwill of the Partnership			$990,000
Partner's share of Goodwill
Lopez	$ 990,000 * 2/10		$198,000
Martinez	$ 990,000 * 4/10		$396,000
Nunez	$ 990,000 * 4/10		$396,000
Entries made on retirement of Lopez
Account Title	Debit	Credit
Goodwill	$990,000
Martinez Capital		$396,000
Nunez Capital		$396,000
Lopez Capital	$102,000
Cash		$300,000
Cash	$40,000	Accounts payable	$125,000
Receivables	$100,000	Loans payable	$500,000
Supplies	$30,000
Goodwill	$990,000
Equipment,net	$500,000	Martinez, capital	$1,070,000
Building,net	$1,000,000	Nunez, capital	$1,245,000
Land	$280,000
Total assets	$2,940,000	Total liabilities and capital	$2,940,000
b)
Since, the assets have been revalued,the impact on the partnership income would be
as under:
		Increase in expenses due to revaluation
Consumption of supplies		$5,000
Depreciation on equipment		$10,000
Depreciation on building		$1,250
Total increase in expenses		$16,250
The partnership income before distribution would be reduced by $ 16,250 due to the
revaluation of the assets
Note-
Since, the total stock of supplies is consumed in the next year, the cost of
consumption of supplies would increase by the value by which it was increased at the
time of revaluation.
Computation of additional depreciation due to revaluation of assets
		Equipment	Building
Value after revaluation		$500,000	$1,000,000
Value before revaluation		$450,000	$975,000
Increase in value due to revaluation		$50,000	$25,000
Useful life in years		5	20
Additional Depreciation		$10,000	$1,250