Callie is admitted to the Adams & Beal Partnership under the goodwill method. Ca

Question

Callie is admitted to the Adams & Beal Partnership under the goodwill method. Callie contributes cash of $20,000 and non-cash assets with a market value of $30,000 and book value of $15,000 in exchange for a 20% ownership interest in the new partnership. Prior to the admission of Callie, the capital of the existing partnership was $130,000 and an appraisal showed the partnership net assets were fairly stated.  Adams & Beal shared profits and losses at a ratio of 80/20, respectively.

Which of the following goodwill amounts would be recorded?
A. $25,000 to Callie capital
B. $70,000 to Callie capital
C. $14,000 decrease to Beal capital
D. $56,000 increase to Adams capital

Explanation / Answer

D.$56,000 increase to Adams capital

Book value 130,000+50,000=180,000

FV 50,000/20 %= 250,000

Goodwill 250,000-180,000= 70,000

70,000x80%= 56,000

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