CHAPTER 15

Partnerships: Formation, Operation and Ownership Changes

BRIEF OUTLINE
15.1 Partnership Defined 15.6 Special Problems in Allocation of Income and Loss
15.2 Reasons for Forming a Partnership 15.7 Financial Statement Presentation
15.3 Characteristics of a Partnership 15.8 Changes in the Ownership of the Partnership
15.4 Partnership Agreement 15.9 Section A: Admission of a New Partner
15.5 Accounting for a Partnership 15.10 Section B: Withdrawal of a Partner

INTRODUCTION

Of the three kinds of business organization, the partnership is probably the least studied. In the next two
chapters, you will learn how to account for the formation of a partnership, how to allocate income, how to
change equity interests, and finally how to dissolve the partnership. It is important to learn how
partnerships are like corporations and how they are not like corporations.

CHAPTER OUTLINE

15.1 Partnership Defined

A. A partnership is defined by the UPA (Uniform Partnership Act) as “an association of two or
more persons to carry on as co-owners a business for profit”
B. Figure 15-1 shows the number of partnerships by industry in the U.S.
C. Sometimes it’s hard to determine whether there really is a partnership. You must look for
1. An agreement, express or implied
2. The intention to make a profit
3. The members must be co-owners
15.2 Reasons for Forming a Partnership
A. Pooling of capital – two or more people can accumulate more resources, both financial and
experience
B. Easier to establish than a corporation – a partnership isn’t a separate legal entity, as is a
corporation
C. Less government regulation – because it isn’t involved with the SEC
D. More flexibility – the owner/managers don’t have to answer to a board of directors or outside
shareholders
15.3 Characteristics of a Partnership
A. General partnership – each member is a general partner
1. Mutual agency – any partner can represent the partnership
2. Right to dispose of a partnership interest – but the new owner isn’t automatically a
partner!
3. Unlimited liability – creditors of the partnership can seize the personal assets of the
partners
4. Limited or uncertain life – the partnership ceases to exist upon the death or withdrawal of
a partner
B. Limited partnership – one or more general partners and one or more limited partners
1. General partners manage the company and have unlimited liability
2. Limited partners only have a capital interest, which is the limit of their liability
Study Guide to accompany Jeter and Chaney, Advanced Accounting

3. Limited partnerships allow general partners to get more capital without losing control
4. There may also be certain tax advantages to a partnership
C. Joint ventures – two or more parties to accomplish a single or limited goal
1. Relationship is governed by an agreement. Each party participates in the overall
management of resources
2. Organized as corporations or partnerships.
15.4 Partnership Agreement
A. A partnership agreement is a contract between the partners that spells out each partner’s
investment, return, contribution, and any other eventuality that might help the partners.
B. See extensive list of the things which should be included in a partnership agreement in text
C. The law does not require that partnerships have a formal agreement, but there are obligations
and restrictions to partnerships in the UPA which will be applied if there is no formal
agreement
D. Partners should get legal and accounting help to create the partnership agreement
E. Capital interest versus profit interest
1. A partner’s capital interest and profit interest in the partnership are not the same thing
2. Capital interest is the partner’s share of net assets
3. Profit interest is divided as the partners have agreed, which might have nothing to do with
capital investment
15.5 Accounting for a Partnership
A. Basic accounting rules
1. A partnership is a separate accounting entity, just like a proprietorship
2. The financial statements should reflect only partnership activities
3. Basic accounting is the same as for the other forms of business organization – the
proprietorship and the corporation
4. The difference is in the equity transactions
a. Partners’ capital accounts can change in amount and in relationship to each other
b. Partnerships do not have common stock or SEC safeguards for investors
c. Partners have capital accounts for investment and drawing accounts for individual
withdrawal of equity
d. The general entries of a partnership
To record the formation of a partnership
Cash (or other assets)
A, Capital
B, Capital
For partners to withdraw assets from the partnership
A, Drawing
B, Drawing
Cash
At the end of the accounting period:
To allocate partnership income among the partners
Income Summary
A, Capital
B, Capital
To close the withdrawals accounts
A, Capital
B, Capital
A, Drawing
B, Drawing
B Recording the formation of a partnership
1. Partners can invest any combination of assets and liabilities in the partnership

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2. Often a proprietor joins forces with another interested party to form a partnership
3. The assets and liabilities should be valued at their agreed-upon fair values
4. A sample entry to create a partnership where the partners invest a number of
assets and liabilities
To form a partnership
Cash
Inventories
Land
Buildings
Equipment
Mortgage Payable
A, Capital
B, Capital
5. There’s a problem if the portion of capital assigned to a partner’s assets invested doesn’t
equal that partner’s agreed upon capital (A gives $10,000, but gets $20,000 worth of
equity)
a. The partner may have management expertise or some other intangible asset which
cannot be capitalized
b. The agreement may call for equal capital balances even though the investments aren’t
equal
c. There are two ways to record the difference between the investment and the capital
balance
i. Bonus method – the partner with the ending capital larger than his or her
investment gets a “bonus” from the other partner, who ends up with less equity
than his or her investment
ii. Goodwill method – an intangible is created so the partner who has invested less
than his or her equity still gets the agreed upon amount, but the partner who
invested more gets to keep his or her investment intact
iii. In reality, the goodwill method is pretty hard to justify, because it’s hard for a
business that is just starting to have goodwill
C. Allocation of net income or loss
1. The partnership agreement should have provisions for distribution of both profit and loss
a. Partners have a good deal of flexibility in how they choose to distribute income – it’s
not like dividends, which have to be equitable
b. If the partnership agreement isn’t clear, it can lead to many problems
c. The purpose of allocation should be to reward each partner for his or her
contributions to the partnership
2. The most common methods of distributing partnership income are
a. Fixed ratio – each partner gets a fixed portion of the income or loss (for example,
50:50)
b. Capital balances – the partners distribute income in the ratio of their capital balances,
which allows them to maintain their proportional equity interests
c. Interest on capital investment – this technique allows the partners to earn a return on
their investment similar to the return they’d get somewhere else
i. This can be a more complex allocation, because the partners have to determine
which capital balance to use – beginning or ending
ii. The interest rate used can also make a big difference in the allocation
iii. Should interest be paid even if there isn’t enough income?
d. Salary – if the partners are involved in the management of the business, they should
get paid for their efforts

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e. Bonus – as with all bonuses, the payment is dependent upon some predetermined
criteria
i. Net income
ii. Net income after income allocations, but before bonus
iii. Net income after bonus but before income allocations
iv. Net income after subtracting everything
f. A combination of two or more of the above is very common
D. Insufficient income to cover allocation
1. Sometimes the partnership income doesn’t meet the partners’ expectations and the
allocation of income is more than the actual income
2. If the partnership agreement doesn’t provide for this, the common practice is to allocate
as usual, then subtract out the excess allocation as a negative remainder
15.6 Special Problems in Allocation of Income and Loss
A. Salaries and interest as expense
1. The income statement is more realistic and comparable if interest and salaries are counted
as expenses rather than distributions of equity
2. There has to be a provision for distributing the remainder, whether it’s positive or
negative
B. Adjustment of income of prior years
1. Since there’s no retained earnings account (income is put directly in the partners’
accounts), any errors in income in prior years has to be allocated to the partners’
individual accounts
2. Any other problems can be minimized with a carefully written partnership agreement
15.7 Financial Statement Presentation
A. The income statement, balance sheet, and statement of cash flows are about the same as a
corporation
1. Partners can’t put salaries and interest distributed to them on the income statement
2. There’s no income tax expense
B. The big difference is in the statement of owners’ equity (partners’ capital), which replaces the
statement of stockholders’ equity
1. All balances and changes must be disclosed
2. The general format
Statement of Partners’ Equity
Partner A Partner B Total
Balance, January 1
Add: Additional investments
Net income allocation
Less: Withdrawals (____________) (____________) (______________)
Balance, December 31
15.8 Changes in the Ownership of the Partnership
A. All partnerships have limited lives
B. There are two ways a partnership can change
1. Dissolution – a “change in the relation of the partners caused by any partner ceasing to be
associated” with the partnership (UPA)
a. Voluntary – the partners choose to part
b. Involuntary – some external event, such as the bankruptcy of the partnership or one
of the partners, causes the dissolution
c. The partnership doesn’t have to stop doing business
i. It can be terminated
ii. It can continue in a new form

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2. Winding up the business – the business is liquidated and ceases to exist (covered in
chapter 16)
C. Valuation – A Central Issue
1. If the partnership is dissolved, the partners must determine the fair value of the assets and
liabilities
a. Withdrawing partners want their fair share
b. New partners want a fair purchase price
c. Remaining partners don’t want to give away some of their equity
2. The fair values of the assets aren’t recorded, since they’re in the books at their historical
cost, depreciated appropriately over their useful lives
3. Approaches to revaluation
a. Revalue the assets and liabilities and allocate the unrealized gain to the original
partners
b. Use the purchase price paid by the new partner – create goodwill
c. Revaluation is logical because the old partnership is dissolved and a new one is
created
4. The opponents of revaluation use the economic substance (business continues) over legal
form (old partnership is dissolved, a new one is created) argument
D Methods of Recording Changes in the Membership of the Partnership
1. Bonus method
a. New partner
i. Partnership assets are increased only by actual assets received
ii. Total equity is redistributed as needed to allocate capital as in the new agreement
b. Partner withdraws
i. Assets of the partnership are paid to the withdrawing partner
ii. If there’s a difference between equity decrease and asset decrease, it is allocated
to the remaining partners’ equity accounts
2. Goodwill method
a. A new asset (goodwill) is created
b. It can go to the new partner or to the old ones
c. It can go to the withdrawing partner or to the remaining ones
15.9 Section A: Admission of a New Partner
A. Assignment of an interest by an existing partner
1. A partner can sell his or her interest, but the other partners have the right to accept or
reject the new owner as a partner
a. It is an issue of management control
b. New owner always would get the leaving partner’s share of equity and income
c. Selling an interest, if the new owner doesn’t become a partner, is not dissolution
2. Acquisition of interest by payment to one partner
a. The new partner gets the old partner’s equity
To change Partner A to Partner C
A, Capital (to close)
C, Capital
b. The sale is outside the partnership, so the price paid has no effect on the transaction
3. Acquisition of an interest by payment to more than one partner
To allocate a portion of A and B’s equity to new partner C
A, Capital
B, Capital
C, Capital
a. The transaction is still external, so the transfer of ownership is book value

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b. Each partner’s equity decreases by the new partner’s percentage bought

c. These methods are often called the bonus method
3. Goodwill implied by purchase price
a. If the new partner pays extra, there’s implied goodwill (intangible asset) to the
existing partners
b. The entries
New partner’s investment × equity % bought = implied partnership equity
Implied equity – actual equity = goodwill
To give existing partners goodwill
Goodwill
A, Capital (A’s profit sharing %)
B, Capital (B’s profit sharing %)
To allocate capital to new partner
A, Capital (C’s percent of A’s new equity)
B, Capital (C’s percent of B’s new equity)
C, Capital (C’s investment)
c. The goodwill has little actual value, and, if the partnership is forced to liquidate, must
be written off
4. Comparison of bonus and goodwill methods
a. Under the bonus method, total net assets and total equity remain the same
b. Under the goodwill method, both net assets and total equity increase
c. The bonus and goodwill methods will end up changing both equity interest and
profits unless
i. The new partner’s profit percentage equals his or her capital interest percentage
ii. The old partners’ profit sharing ratios are relatively the same
B. Acquisition of interest by investing assets
1. In this case, the partnership gets new assets from the new partner
a. New equity = existing equity + new partner’s investment
b. New partner’s % × new equity = book value of capital interest acquired
c. Book value acquired equals assets invested
i. Entry
To record admission of new partner
Cash (assets invested)
C, Capital
ii. There’s no allocation to make
d. Book value acquired is less than assets invested
i. Bonus method
a. Assets invested – book value acquired = bonus to original partners
b. Entry
To record admission of new partner
Cash (assets invested)
A, Capital (bonus amount × profit/loss %)
B, Capital (bonus amount × profit/loss %)
C, Capital (book value acquired)
ii. Goodwill
a. Assets invested × new partner’s interest = new equity
b. New equity – (old equity + assets invested) = goodwill
c. Entries
To record goodwill to existing partners
Goodwill

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A, Capital (goodwill × profit/loss %)

B, Capital (goodwill × profit/loss %)

To record admission of new partner

Cash (assets invested)
C, Capital (assets invested)
c. Book value acquired is greater than assets invested
i. Bonus method
a. Book value acquired – assets invested = bonus to new partner
b. Bonus to new partner decreases old partner’s equity
c. Entry
To record admission of new partner
Cash (assets invested)
A, Capital (bonus amount × profit/loss %)
B, Capital (bonus amount × profit/loss %)
C, Capital (book value acquired)
ii. Goodwill method
a. Book value acquired – assets invested = goodwill to new partner
b. Entry
To record admission of new partner
Cash (assets invested)
Goodwill
C, Capital (book value acquired)
15.10 Section B: Withdrawal of a Partner
A. A partner has the right to withdraw from the partnership
1. If remaining partners agree, the withdrawing partner can get goodwill
2. If not, all the withdrawing partner gets is book value
B. Payment to retiring partner
1. Payment in excess of book value to a withdrawing partner
a. Bonus method
i. Partner’s payment – partner’s equity = bonus to withdrawing partner
ii. The bonus decreases the remaining partners’ equity
iii. Entries
To record the withdrawal of a partner
A, Capital (to close)
B, Capital (bonus amount × profit/loss %)
C, Capital (bonus amount × profit/loss %)
Liability to A
To record payment of assets to withdrawing partner
Liability to A
Cash (or other assets)
b. Goodwill method
i. Partner’s payment × equity interest = implied equity
ii. Implied equity – actual equity = goodwill
iii. The goodwill is allocated to all partners
iv. Entries
To record goodwill
Goodwill
A, Capital (to close)

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B, Capital (goodwill × profit/loss %)

C, Capital (goodwill × profit/loss %)
To record withdrawal of partner
A, Capital
Liability to A
To record payment of assets to withdrawing partner
Liability to A
Cash (or other assets)
2. Payment of less than book value to withdrawing partner
a. Bonus method
i. Partner’s equity – partner’s payment = bonus to remaining partners
ii. Entries
To record withdrawal of partner
A, Capital (to close)
Liability to A
B, Capital (bonus amount × profit/loss %)
C, Capital (bonus amount × profit/loss %)
To record payment of assets to withdrawing partner
Liability to A
Cash
b. Revaluation of assets method
i. Partner’s payment × partner’s percentage = implied equity
ii. Actual equity – implied equity = overvaluation of assets
iii. Overvaluation is allocated to all partners
iv. Entries
To record revaluation of assets
A, Capital (overvaluation amount × profit/loss %)
B, Capital (overvaluation amount × profit/loss %)
C, Capital (overvaluation amount × profit/loss %)
Asset (as determined)
To record withdrawal of partner
A, Capital (to close)
Liability to A
To record payment of assets to withdrawing partner
Liability to A
Cash
C. Death of a partner
1. If the partnership agreement doesn’t have provisions, the surviving partners and the estate
must agree on a settlement
2. The interest of the deceased partner is found by revaluing the assets and closing the
books
a. The interest may be distributed to the heirs
b. The interest may be sold to a third party
c. The interest may be sold to a surviving partner

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MULTIPLE CHOICE QUESTIONS

Choose the BEST answer for the following questions

_____ 1. A partnership is
a. an informal agreement between any number of people up to 100
b. an informal agreement between two or more people to do business together
c. a formal agreement between two or more people to do business together
d. either an informal agreement between two or more people to do business together, or a
formal agreement between two or more people to do business together

_____ 2. Which of the following is NOT a reason for forming a partnership?

a. Pooling of capital
b. Easier to establish
c. More flexibility
d. More government regulation

_____ 3. General partnerships have which of the following characteristics?

a. Mutual agency
b. Limited life
c. Unlimited liability
d. All of these are characteristics

_____ 4. Which of the following is a characteristic of a limited partnership?

a. Only limited partners have unlimited liability
b. Limited partners have an active involvement in the management of the partnership
c. Only general partners have unlimited liability
d. All of these are characteristics

_____ 5. A joint venture is

a. any partnership between two or more people or organizations
b. a venture with a single or limited purpose
c. always includes at least one corporation
d. a venture with unlimited life

_____ 6. What is a partnership agreement?

a. A formal contract between the partners
b. An extensive list of the way the partnership will operate
c. A document which spells out the partner’s separate investments and profit sharing ratios
d. All of these

_____ 7. What is the difference between capital interest and profit interest?
a. Capital interest is the partner’s investment, profit interest is the share of income the
partner is entitled to
b. Capital interest and profit interest are always the same
c. Capital interest is the partner’s share of income, profit interest is the share of retained
earnings
d. Capital interest and profit interest are always different

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_____ 8. Which of the following is NOT a basic rule for accounting for partnerships?
a. The partnership is accounted for as a separate entity
b. The partner’s personal accounts can be included in the partnership books
c. There is not separate income tax for partnerships
d. The primary difference between partnership books and corporation books is in the equity
accounts

_____ 9. The bonus method:

a. requires that partners always invest equal amounts in the partnership
b. allows the recording of an intangible asset to equalize equity accounts
c. allocates actual capital among the partners
d. is not an acceptable technique to record a partnership

_____10. In what ways can a partnership income be divided?

a. In a fixed ratio
b. In a ratio of capital balances
c. As a salary allowance
d. All of these

_____11. What happens when the partnership income is insufficient to cover the partners’ agreement to
allocate income?
a. The partnership agreement must have an agreement about the difference
b. The excess allocation can be deducted as a negative remainder
c. The partners can allocate extra income in anticipation of next year’s income
d. All of these

_____12. How are changes in partnership equity presented in the financial statements?
a. As a lump sum on the balance sheet
b. Just like corporate equity, except corporate stock is replaced with partnership capital
c. As a separate statement of partners’ capital
d. Partners’ capital isn’t listed on the financial statements

_____13. Which of the following is a partnership dissolution?

a. A change in the relation of the partners
b. The business ceases to exist
c. A partnership becomes a corporation
d. All of these can be dissolutions

_____14. To what extent are assets and capital revalued when change occurs in the composition of
partners?
a. Revalue the assets and liabilities and allocate the unrealized gain or loss to the partners
b. Use the purchase price of the new partner to create an intangible asset called a bonus
c. Revaluation doesn’t happen because the business continues
d. All of these are true

_____15. Upon the death of a partner, the

a. heirs automatically become new partners
b. partnership must liquidate
c. assets are revalued to determine the deceased partner’s equity
d. partnership continues as before

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MATCHING

Match the terms in the list to the definitions below. Each term may be used only once.

A. General partnership G. Bonus method

B. Limited partnership H. Goodwill method
C. Joint venture I. UPA
D. Partnership agreement J. Implied equity
E. Capital interest K. Dissolution
F. Profit interest L. Liquidation

_____ 1. A law which controls partnerships

_____ 2. Contract between two or more partners

_____ 3. The share of income allocated to each partner

_____ 4. A business where all the partners have unlimited liability

_____ 5. When the equity structure of a partnership changes

_____ 6. A technique used to allocate equity interests where total equity does not change

_____ 7. A temporary partnership

_____ 8. An amount calculated to determine a new partner’s equity interest

_____ 9. When a partnership ceases to do business

_____10. The share of invested equity allocated to each partner

_____11. A business where some of the partners are not involved in management

_____12. A technique used to allocate equity interest where total equity increases

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EXERCISES

1. Able and Baker have agreed to form a partnership. Both of them already had proprietorships, and
those assets were going to be combined to form the partnership. The fair value of Able and Baker’s
assets and liabilities are listed below.
Able’s Baker’s
Contribution Contribution
Cash $ 5,000 $20,000
Inventory 5,000 40,000
Land 50,000
Building 30,000
Equipment 10,000 20,000
Liabilities assumed (10,000) ______
Net assets contributed $90,000 $80,000

Assuming that Able and Baker have agreed to have equal equity balances, prepare the journal entry to
record the partnership using
A. The bonus method

B. The goodwill method

2. Refer to Exercise 1 Part A. Able and Baker have made the following provision for the allocation of
partnership income:
Able Baker
Percent of beginning equity balance 8% 10%
Salary allowance $25,000 $15,000
Remainder 50% 50%

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A. In the first year of operation, the partnership earned $60,000. Complete the schedule below to
allocate income

Allocation of Partnership Income

Able Baker Total
Percent of equity balance
Salary allowance
Total before remainder
Remainder
Total

B. Now assume that the partnership income was $20,000. Complete the schedule below
Allocation of Partnership Income
Able Baker Total
Percent of equity balance
Salary allowance
Total before remainder
Remainder
Total

3. Able and Baker have had a successful partnership, but now Able wants to retire. Account balances
after restating the assets and liabilities for the partnership are below.
Tangible assets $150,000
Liabilities 30,000
Able, Capital 50,000
Baker, Capital 70,000

Able and Baker’s residual profit and loss ratio is 40:60

A. Able sells her equity to Cab for $75,000 and Baker accepts him as a partner. Record the
withdrawal of Able from the partnership and the admission of Cab

B. Able and Baker sell 50 percent of their equity to Cab for $50,000 each

4. Refer to the information in Exercise 3. Assume that, instead of Able retiring, Able and Baker decide
to admit Cab as a new partner to take on some of the work. Cab has agreed to pay $50,000 for a 30
percent equity interest in the partnership. Record the admission of Cab to the partnership using the
A. Bonus method

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B. Goodwill method

5. Refer to the information in Exercise 3. Assume Cab is willing to pay $75,000 for a 30 percent equity
interest. Record the admission using the
A. Bonus method

B. Goodwill method

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SOLUTIONS

MULTIPLE CHOICE

1. D 5. B 9. C 13. D
2. D 6. D 10. D 14. A
3. D 7. A 11. B 15. C
4. C 8. B 12 C

MATCHING

1. I 4. A 7. C 10. E
2. D 5. K 8. J 11. B
3. F 6. G 9. L 12. H

EXERCISES

1. Able’s net contribution $ 90,000

Baker’s net contribution 80,000
Total $170,000
A.
Bonus method: Equity = $170,000/2 = $85,000 A gives $5,000 equity to B
To record new partnership of Able and Baker
Cash (5 + 20) 25,000
Inventory (5 + 40) 45,000
Land 50,000
Building 30,000
Equipment (10 + 20) 30,000
Liabilities 10,000
Able, Capital 85,000
Baker, Capital 85,000
B.
Goodwill method: 90,000 = 50% of equity Implied equity = $180,000
Implied equity – actual equity = goodwill $180,000 – 170,000 =
$10,000
To record new partnership of Able and Baker
Cash 25,000
Inventory 45,000
Land 50,000
Building 30,000
Equipment 30,000
Goodwill 10,000
Liabilities 10,000
Able, Capital 90,000
Baker, Capital 90,000

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2. A.
Allocation of Partnership Income
Able Baker Total
Percent of equity balance $ 6,800 $ 8,500 $15,300
Salary allowance 25,000 15,000 40,000
Total before remainder 31,800 23,500 55,300
Remainder 2,350 2,350 4,700
Total $34,150 $25,850 $60,000
B.
Allocation of Partnership Income
Able Baker Total
Percent of equity balance $ 6,800 $ 8,500 $15,300
Salary allowance 25,000 15,000 40,000
Total before remainder 31,800 23,500 55,300
Remainder (negative) (17,650) (17,650) (35,300)
Total $ 14,150 $ 5,850 $ 20,000

3. A.
To record the transfer of Able’s capital to Cab
Able, Capital 50,000
Cab, Capital 50,000

B.
To record transfer of Able and Baker’s capital to Cab
Able, Capital (50 × 0.5) 25,000
Baker, Capital (70 × 0.5) 35,000
Cab, Capital 60,000

4. Total original equity = Able + Baker $50,000 + $70,000 = $120,000

New equity = original + new investment $120,000 + $50,000 = $170,000

A.
Bonus method: Cab gets $170,000 × 0.3 = $51,000, so Cab’s bonus is $51,000 - $50,000 =
$1,000
A gives $1,000 × 0.4 = $400 and Baker gives $1,000 × 0.6 = $600
To record the admission of Cab
Cash 50,000
Able, Capital 400
Baker, Capital 600
Cab, Capital 51,000

B.
Goodwill Method: Able’s equity + Baker’s equity = 70% of new equity ($120,000 = 0.7X =
$171,429)
Cab’s equity = Implied equity × 0.3 ($171,429 × 0.3 = $51,429, so goodwill to Cab =
$1,429)
To record admission of Cab
Cash 50,000
Goodwill 1,429

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Cab, Capital 51,429

5. New equity = $120,000 + $75,000 = $195,000

A.
Bonus: Cab’s share = $195,000 × 0.3 = $58,500; $75,000 - $58,500 = $16,500 bonus to old
partners
To Able: $16,500 × 0.4 = $6,600 To Baker: $16,500 × 0.6 = $9,900
To record admission of Cab
Cash 75,000
Able, Capital 6,600
Baker, Capital 9,900
Cab, Capital 58,500

B.
Goodwill: $75,000 = 0.3X = $250,000 $250,000 - $195,000 = $55,000 goodwill
To Able: $55,000 × 0.4 = $22,000 To Baker: $55,000 × 0.6 = $33,000
To record goodwill to Able and Baker
Goodwill 55,000
Able, Capital 22,000
Baker, Capital 33,000
To record admission of Cab
Cash 75,000
Cab, Capital 75,000

15-17