Question

Peter, Roberts, and Dana have the following capital balances; $80,000, $100,000 and $60,000, respectively. The partners share profits and losses 20%, 40%, and 40% respectively. Roberts retires and is paid $160,000 based on an independent appraisal of the business. If the goodwill method is used, what is the capital balance of Peter?

Answer 1

Answer:

The capital balance of Peter is $110,000

Explanation:

This is a situation of dissolution of a partnership, It can happen due to following reasons

1. Accomplishment of a specific objective.
2. Admission of new partner
3. Deat or retirement of any partner

The given situation is the retirement of Partner.

Robert has capital balance of $100,000. He will receive $60,000 in addition to his capital balance as a goodwill.

As he has 40% share in the partnership, so the total goodwill will be

Total Goodwill = $60,000 / 40% = $150,000

Peter's Share in Goodwill = $150,000 x 20% = $30,000

Peter Capital balance = $80,000 + $30,000 = $110,000