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15 May, 22:22

In the AD partnership, Allen's capital is $140,000 and Daniel's is $40,000 and they share income in a 3:1 ratio, respectively. They decide to admit David to the partnership. Each of the following questions is independent of the others.

Refer to the information provided above. David invests $50,000 for a one-fifth interest. What amount of goodwill will be recorded?

A. $20,000

B. $4,000

C. $40,000

D. $15,000

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Answers (1)
  1. 16 May, 01:28
    0
    A. $20,000

    Explanation:

    For computing the goodwill amount we have to apply the formula which is shown below:

    = Required capital - actual capital

    where,

    We know that David invested $50,000 for one-fifth interest

    So, Required capital = David investment amount * 5

    = $50,000 * 5

    = $250,000

    And, the actual capital would be

    = Allen capital + Daniel capital + David investment

    = $140,000 + $40,000 + $ 50,000

    = $230,000

    So, the goodwill would be

    = $250,000 - $230,000 = $20,000
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Home » Business » In the AD partnership, Allen's capital is $140,000 and Daniel's is $40,000 and they share income in a 3:1 ratio, respectively. They decide to admit David to the partnership. Each of the following questions is independent of the others.
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