Question

A partnership has the following capital balances: Carpenter (40% of gains and losses)…………………………………………..$140,000 Dane (30%) ………………………………………………………………………………….280,000 Elkhart (30%) ……………………………………………………………………………….340,000 Krystal is going to pay a total of $240,000 directly to these three partners to acquire a 25 percent ownership interest from each. Goodwill is to be recorded. What is Dane’s capital balance after the transaction?

Answer 1

Answer: $255,000

Step-by-step explanation:

Given that,

Carpenter (40% of gains and losses) = $140,000

Dane (30%) = $280,000

Elkhart (30%) = $340,000

The implied value of company =
`(240,000*100)/(25)`

= $960,000

Krystal is paying $240,000 directly to the existing partner so it will not affect the capital of the firm.

Current Capital of firm = $140,000 + 280,000 + 340,000

= $760,000

Goodwill = implied value of company - Current Capital of firm

= $960,000 – 760,000

= $200,000

30% of Goodwill is attributed to Dane.

Dane Capital after Goodwill = $280,000 + 30% × $200,000

= $280,000 + $60,000

= $340,000

25% interest is given to new partner. So, Dane’s capital balance will be decreased by 25%

Dane’s Capital = Dane Capital after Goodwill - 25% of $340,000

= $340,000 – 25% × $340,000

= $255,000