Question

The journal entry for treatment of goodwill, when a new partner brings his share of goodwill in cash and one of the old partners gains, involves the following
(A) Gaining Partner’s Capital Account is debited
(B) Premium for Goodwill Account is debited
(C) Sacrificing Partner’s Capital Account is credited
(D) Gaining Partner’s Capital Account is credited

• A. (A), (B), and (D) only
• B. (A), (B), (C), and (D)
• C. (A), (B), and (C) only
• D. (B), (C), and (D) only

Answer 1

The Correct Option is C

The journal entry process for recording goodwill contributed in cash by a new partner, where an existing partner gains, involves the following:

1. Debit the Premium for Goodwill Account: This records the amount of goodwill brought in by the new partner.

Journal Entry: Debit: Premium for Goodwill Account

1. Debit the Gaining Partner’s Capital Account: This adjusts the capital account of the old partner who benefits from the new partner's admission.

Journal Entry: Debit: Gaining Partner's Capital Account

1. Credit the Sacrificing Partner’s Capital Account: This compensates the old partner who forgoes a portion of their share, crediting their capital account.

Journal Entry: Credit: Sacrificing Partner's Capital Account

Consequently, the journal entries are represented by options (A), (B), and (C).