Question

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

Answer 1

The amount debited for goodwill when admitting C to the partnership is $6,000.

Step-by-step explanation:

To calculate the debited amount for goodwill when admitting C to the partnership, we need to determine the total capital balance after C's contribution. The total capital balance before C's admission is $100,000 (($50,000 + $30,000 + $20,000)). After C contributes $40,000, the total capital balance becomes $140,000 (($100,000 + $40,000)).

Now, we need to calculate the share proportion of each partner in the new total capital. P's share remains 30%, L's share remains 20%, O's share remains 50%, and C's share is 20% (as stated in the question).

The amount debited for goodwill is calculated by subtracting the existing capital balance from the new capital balance multiplied by the share proportion. Therefore, the amount debited for goodwill is $6,000 (($140,000 - $100,000) * 20%)).

Answer 2

$60,000

Step-by-step explanation:

Total Capital = $50,000 + $30,000 + $20,000

Total Capital = $100,000

Using goodwill method, total value = $40,000/20% = $200,000

Balance after investment = $100,000 + $40,000 = $140,000

Goodwill = Total value of goodwill - Balance after investment

Goodwill = $200,000 - $140,000

Goodwill = $60,000

So, $60,000 will be debited for goodwill.