The capital balances and the income and loss sharing ratio of the partners Vir, Willard and

Manny are as follows:

Capital Balance P &L Ratio

Vir P1150,000 2
Willard 125,000 1
Manny 100,000 2

The partnership has been successful and the partners have decided to invite Cyril to join
them. Cyril has been admitted into the partnership with a one-third capital interest for a cash
investment of PI 20,000. The net assets of the partnership are fairly valued.

Instructions: Prepare the entries to record the admission of Cyril under the (l) bonus method
and (2) goodwill method.

1) Bonus Method

Computation:

TCC Bonus *bonus computation TAC

Vil 150,000 (18,000) -45,000 x 2/5= -18,000 132,000
Willard 125,000 (9,000) -45,000 x 1/5 = -9,000 116,000
Manny 100,000 (18,000) -45,000 x 2/5 = -18,000 82,000
Cyril 120,000 45,000 165,000 *(495,000 x 1/3)
P 495,000 P 495,000

Journal Entry:

Cash 120,000
Vir, Capital 18,000
Willard, Capital 9,000
Manny, Capital 18,000
Cyril, Capital 165,000

2) Goodwill Method

Computation:

TCC TAC *AC Computation Goodwill

Old (2/3) 375,000 375,000 562,500 x 2/3 = 375,000 0
New (1/3) 120,000 187,500 562,500 x 1/3 = 187,500 67,500
495,000 562,5000 67,500

TAC (old partner) = 375,000 / 2/3 = 562,500 TAC (new partner) = 120,000 / 1/3 = 360,000

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 AC= 562,500 x 2/3 = 375,000

AC= 562,500 x 1/3 = 187,500

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 Journal Entry:

Cash 120,000

Goodwill 67,500

Cyril, Capital 187,500

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