When Mill retired from the partnership of Mill, Yale, and Lear, the final settlement of Mill's interest exceeded Mill's capital balance. Under the bonus method, the excess:
a.Was recorded as goodwill.
b.Was recorded as an expense.
c.Reduced the capital balances of Yale and Lear.
d.Had no effect on the capital balances of Yale and Lear.
Answer:C
Choice "C" is correct. Under the bonus method, any premium paid to the retiring partner is allocated to the remaining partners' accounts, based on the profit and loss ratios of the remaining partners.
Choice "a" is incorrect. Goodwill is not recorded in the bonus method.
Choice "b" is incorrect. Expense is not recognized for the premium paid to a retiring partner. Under the bonus method the remaining partners' account balances will be adjusted.
Choice "d" is incorrect. Under the bonus method, the remaining partners' account balances are adjusted.