Retirement: Bonus and Goodwill Calculations

Ellery Stevens, senior partner in a rapidly growing local CPA firm, has decided to retire. His share in the firms profits and losses is 25 percent and his capital account has a balance of $180,000. Total capital of the firm is $800,000. Under the partnership agreement, Stevens will receive $300,000 upon retirement.

Required

a. Calculate the bonus to Stevens and the total capital of the firm after Stevens retirement.

	Amount
Stevens' bonus	$Answer
Total capital of firm after Stevens' retirement	$Answer

b. Prepare the journal entries to record Stevens retirement, if the partial goodwill approach is used.

Description	Debit	Credit
AnswerCashGoodwillOther partners, CapitalStevens, Capital	Answer	Answer
AnswerCashGoodwillOther partners, CapitalStevens, Capital	Answer	Answer
To record partial goodwill.
AnswerCashGoodwillOther partners,CapitalStevens, Capital	Answer	Answer
AnswerCashGoodwillOther partners, CapitalStevens, Capital	Answer	Answer
To record retirement payment to Stevens.

c. Calculate the amount of goodwill recognized if the total goodwill approach is used. Prepare the journal entries to record Stevens retirement using the total goodwill approach.

Description	Debit	Credit
AnswerCashGoodwillOther partners, CapitalStevens, Capital	Answer	Answer
AnswerCashGoodwillOther partners, CapitalStevens, Capital	Answer	Answer
AnswerCashGoodwillOther partners, CapitalStevens, Capital	Answer	Answer
To record total goodwill.
AnswerCashGoodwillOther partners,CapitalStevens, Capital	Answer	Answer
AnswerCashGoodwillOther partners, CapitalStevens, Capital	Answer	Answer
To record retirement payment to Stevens.