Question

P, L, and O are partners with capital balances of $50,000, $30,000 and $20,000 and who share in the profit and loss of the PLO partnership 30%, 20%, and 50%, respectively, when they agree to admit C for a 20% interest. If C contributes $40,000 to the partnership and the goodwill method is used, what amount will be debited for goodwill

Answer 1

Answer:

$60,000

Explanation:

Total Capital = $50,000 + $30,000 + $20,000

Total Capital = $100,000

Using goodwill method, total value = $40,000/20% = $200,000

Balance after investment = $100,000 + $40,000 = $140,000

Goodwill = Total value of goodwill - Balance after investment

Goodwill = $200,000 - $140,000

Goodwill = $60,000

So, $60,000 will be debited for goodwill.