Assume the partnership of Howell, Madrid, and Waldrop has been in existence for a number of years.Howell decides to withdraw from the partnership when the partners' capital balances are as follows: An appraisal of the business and its net assets estimates the fair value to be $154,000. Land with a book value of $20,000 has a fair value of $35,000.Howell has agreed to receive $84,000 in exchange for her partnership interest.Prepare the journal entries for the dissolution of Howell's partnership interest, assuming the goodwill method is to be applied.

Question

Assume the partnership of Howell, Madrid, and Waldrop has been in existence for a number of years.Howell decides to withdraw from the partnership when the partners' capital balances are as follows:   An appraisal of the business and its net assets estimates the fair value to be $154,000. Land with a book value of $20,000 has a fair value of $35,000.Howell has agreed to receive $84,000 in exchange for her partnership interest.Prepare the journal entries for the dissolution of Howell's partnership interest, assuming the goodwill method is to be applied.

Wanda Fernandez · Accepted Answer

Final Answer : The $154,000 fair value of the business is $54,000 more than the book value of $100,000 ($60,000 + $15,000 + $25,000) . Of this $54,000, $15,000 is allocated to land and the balance of $39,000 is attributable to goodwill. The assets of the business are increased with increases to the partners in their profit and loss ratios. Then Howell's capital balance will be $84,000 and removed with the payment of cash.

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