Final answer:
When a new partner receives a capital credit greater than the tangible assets contributed, it can be explained by the recognition of goodwill either from the old partners or the new partner.
Step-by-step explanation:
When a new partner is admitted into a partnership and the new partner receives a capital credit greater than the tangible assets contributed, it can be explained by the recognition of goodwill. In this case, both options I and II are correct.
- Option I: The old partners' goodwill is being recognized - This means that the existing partners have built a positive reputation or customer base, which has contributed to the value of the partnership.
- Option II: The new partner's goodwill is being recognized - This implies that the new partner brings certain qualities or advantages to the partnership that enhances its value.
By recognizing goodwill, the partnership acknowledges the intangible assets that contribute to its success and may result in the new partner receiving a capital credit greater than the tangible assets contributed.