Principles of Financial Accounting · free preview
Creating a Partnership and Its Journal Entries
Forming a partnership records each partner's contributed assets and liabilities at fair value, credits a capital account for each partner's net investment, and reconciles any difference between net contributed value and agreed capital balances through bonus or goodwill methods.
1. Contributions at fair value
Contributions at fair value
2. Agreed capital versus contributed value
Agreed capital versus contributed value
3. Bonus method illustrated
Bonus method illustrated
4. Goodwill method illustrated
Goodwill method illustrated
5. Fair value rule
At what value are noncash assets contributed to a partnership recorded?
6. Net investment computation
A partner contributes 40,000 dollars cash, equipment with a 60,000 dollar fair value, and the partnership assumes a 10,000 dollar note payable on the equipment. Compute the partner's net capital credit in dollars.
7. Bonus method effect
Under the bonus method of reconciling agreed capital, what happens to total partnership assets?
8. Goodwill method signature
What distinguishes the goodwill method from the bonus method at partnership formation?
9. Net contribution components
Complete the rule. A partner's capital credit equals contributed assets at fair value minus ____ the partnership assumes. One word.
10. Goodwill asset recognition
Under the goodwill method, the excess of agreed total capital over net contributed assets is recorded as the intangible asset ____. One word.
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