Recording new partner investment (LO# 6)

The capital accounts of the Fax and Bel partnership on September 30, 2011, were:

Fax capital (75% profit percentage) $140,000

Bel capital (25% profit percentage) 60,000

Total capital $200,000

On October 1, Rob was admitted to a 40 percent interest in the partnership when he purchased 40 percent of each existing partner's capital for $120,000, paid directly to Fax and Bel.

REQUIRED:

1. Determine the capital balances of Fax, Bel, and Rob after Rob's admission to the partnership if goodwill is not recorded.

2. Determine the capital balances of Fax, Bel, and Rob after Rob's admission to the partnership if goodwill is recorded, assuming that the book value and fair value of recorded assets are equal.