Question

RD formed a partnership on February 10, 20X9. R contributed cash of $150,000, while D contributed inventory with a fair value of $120,000. Due to R's expertise in selling, D agreed that R should have 60 percent of the total capital of the partnership. R and D agreed to recognize goodwill. What is the total capital of the RD partnership and the capital balance of R after the goodwill is recognized? Total Capital R, Capital A) $ 450,000 $ 270,000 B) $ 330,000 $ 198,000 C) $ 300,000 $ 180,000 D) $ 270,000 $ 162,000

Answer 1

Answer:

The total capital of the RD partnership and the capital balance of R after the goodwill is recognized is $300000 and $180000.

Explanation:

Original Capital ($150000 + $120000) $270,000    

Implied Value = $150000/60%                  $250000    

Implied value is less than the original value, thus goodwill be calculated as follow:  

R Investment = 60% (Original capital + Goodwill)    

$150000 + Goodwill = 60%($120000 + $150000 + Goodwill)  

$150000 + Goodwill = $162000 + 0.60Goodwill    

0.40Goodwill = $12000    

Goodwill = $12000/0.40    

Goodwill = $30000    

The investment made by R = $150000 + $30000  

the total investment will be $180000 for 60% interest.

C. Total Capital = $300000 ($180000 + $120000)    

    R Capital = $180000 ($150000 + $30000 goodwill)

Therefore,  The total capital of the RD partnership and the capital balance of R after the goodwill is recognized is $300000 and $180000.