Use the following information to answer the question(s) below.

A summary balance sheet for the Lemon, Mango, and Nobb partnership appears below. Lemon, Mango, and Nobb share profits and losses in a ratio of 2:3:5, respectively.
The partners agree to admit Oran for a one-fifth interest. The fair market value of partnership land is appraised at $200,000 and the fair market value of inventory is $175,000. The assets are to be revalued prior to the admission of Oran and there is $30,000 of goodwill that attaches to the old partnership.

-By how much will the capital accounts of Lemon,Mango,and Nobb increase,respectively,due to the revaluation of the assets and the recognition of goodwill?
A)The capital accounts will increase by $50,000 each.
B)The capital accounts will increase by $60,000 each.
C)$36,000,$54,000,and $90,000
D)$40,000,$50,000,and $60,000

Question

Use the following information to answer the question(s) below.

A summary balance sheet for the Lemon, Mango, and Nobb partnership appears below. Lemon, Mango, and Nobb share profits and losses in a ratio of 2:3:5, respectively.
The partners agree to admit Oran for a one-fifth interest. The fair market value of partnership land is appraised at $200,000 and the fair market value of inventory is $175,000. The assets are to be revalued prior to the admission of Oran and there is $30,000 of goodwill that attaches to the old partnership.

-By how much will the capital accounts of Lemon,Mango,and Nobb increase,respectively,due to the revaluation of the assets and the recognition of goodwill?
A)The capital accounts will increase by $50,000 each. 
B)The capital accounts will increase by $60,000 each. 
C)$36,000,$54,000,and $90,000 
D)$40,000,$50,000,and $60,000

Quizplus · Accepted Answer

From the given information, we know that the fair value of the assets after revaluation is $700,000 ($200,000 + $300,000 + $200,000). 
Lemon's share of assets is 1/3, so it comes out to be $233,333 ($700,000/3). 
Similarly, Mango's and Nobb's share of assets is $350,000 (2/3 * $700,000). 
Now we have to compare Lemon's current capital balance with the adjusted amount. Currently, each partner has a capital balance of $200,000. 
The amount by which the fair value of its net assets exceeds its carrying amount is its share of goodwill. 
Therefore, Lemon's share of goodwill is $33,333 ($233,333 - $200,000). Similarly, Mango's and Nobb's share of goodwill is $66,667 each ($350,000 - $200,000). 
Thus, the increase in capital accounts of Lemon, Mango, and Nobb will be $36,000 ($33,333 + $2,667), $54,000 ($66,667 - $12,667), and $90,000 ($66,667 + $23,333) respectively. 
Therefore, the correct option is C.

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