C is corrent. Under the bonus method, the excess of a new partner’s contribution over that partner’s purchased share (percent of equity) is allocated to the original partners’ capital accounts as if they had been paid a bonus. The book value of 1/5 of the partnership purchased by Sidney is $88,800 ($444,000 ÷ 5). Thus the gain to be recognized is $43,200 ($132,000 selling price – $88,800 book value). Note there is no need to allocate gains or losses and capital balances between Newton and Sharman, as the requirement is in terms of the combined gain.
A is incorrect. Under the bonus method, the excess of a new partner’s contribution over that partner’s purchased share (percent of equity) is allocated to the original partners’ capital accounts as if they had been paid a bonus. The book value of 1/5 of the partnership purchased by Sidney is $88,800 ($444,000 ÷ 5). Thus the gain to be recognized is $43,200 ($132,000 selling price – $88,800 book value). Note there is no need to allocate gains or losses and capital balances between Newton and Sharman, as the requirement is in terms of the combined gain.
B is incorrect. Under the bonus method, the excess of a new partner’s contribution over that partner’s purchased share (percent of equity) is allocated to the original partners’ capital accounts as if they had been paid a bonus. The book value of 1/5 of the partnership purchased by Sidney is $88,800 ($444,000 ÷ 5). Thus the gain to be recognized is $43,200 ($132,000 selling price – $88,800 book value). Note there is no need to allocate gains or losses and capital balances between Newton and Sharman, as the requirement is in terms of the combined gain.
D is incorrect. Under the bonus method, the excess of a new partner’s contribution over that partner’s purchased share (percent of equity) is allocated to the original partners’ capital accounts as if they had been paid a bonus. The book value of 1/5 of the partnership purchased by Sidney is $88,800 ($444,000 ÷ 5). Thus the gain to be recognized is $43,200 ($132,000 selling price – $88,800 book value). Note there is no need to allocate gains or losses and capital balances between Newton and Sharman, as the requirement is in terms of the combined gain.
|
