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?
A) $15,000
B) $20,000
C) $25,000
D) $28,000
E) $60,000

Question

Quizplus · Accepted Answer

The total capital after C's contribution is $140,000 ($50,000 + $30,000 + $20,000 + $40,000). C's 20% interest implies a total partnership value of $200,000 ($40,000 / 20%). The implied goodwill is $60,000 ($200,000 - $140,000).

P, L, and O Are Partners with Capital Balances of $50,000