Detailed Answer
(d) Under both the bonus and goodwill methods, the
assets of the partnership must first be restated to their fair market
value. Then, the withdrawing partner’s capital account must be
adjusted to the amount that the withdrawing partner is expected
to receive. When the bonus method is used, no new goodwill is
recorded. Instead, the existing partners’ capital accounts are
reduced by the amount necessary to increase the withdrawing
partner’s capital to the amount s/he is to be paid. When the
goodwill method is used, new goodwill is recorded, and each
partner’s capital account is increased accordingly. Therefore, the
bonus method results in a decrease of existing partners’ capital
accounts, while the goodwill method results in an increase of
existing partners’ capital accounts.