B is corrent. The requirement is to determine the amount of goodwill implied by Zorn’s investment. Zorn is investing $100,000 for a 1/3 interest in the partnership. Therefore, $100,000 represents 1/3 of the value of the equity of the new partnership ($100,000 ÷ 1/3 = $300,000). The tangible portion of the equity is $250,000 ($60,000 + $90,000 + $100,000). Thus, the total implied goodwill is $50,000 ($300,000 – $250,000). All of this goodwill is credited to the capital accounts of the original partners, as shown below. | | Total | Dunn | Grey | Zorn | | Capital before admission | $150,000 | $60,000 | $ 90,000 | -- | | Contribution by Zorn | 100,000 | | | $100,000 | | Revaluation to FV | 50,000 | 25,000 | 25,000 | ______ | | Total capital | $300,000 | $85,000 | $115,000 | $100,000 | | Percent interest | | 28.3% | 38.3% | 33.3% |
A is incorrect. The requirement is to determine the amount of goodwill implied by Zorn’s investment. Zorn is investing $100,000 for a 1/3 interest in the partnership. Therefore, $100,000 represents 1/3 of the value of the equity of the new partnership ($100,000 ÷ 1/3 = $300,000). The tangible portion of the equity is $250,000 ($60,000 + $90,000 + $100,000). Thus, the total implied goodwill is $50,000 ($300,000 – $250,000). All of this goodwill is credited to the capital accounts of the original partners, as shown below. | | Total | Dunn | Grey | Zorn | | Capital before admission | $150,000 | $60,000 | $ 90,000 | -- | | Contribution by Zorn | 100,000 | | | $100,000 | | Revaluation to FV | 50,000 | 25,000 | 25,000 | ______ | | Total capital | $300,000 | $85,000 | $115,000 | $100,000 | | Percent interest | | 28.3% | 38.3% | 33.3% |
C is incorrect because goodwill will be recorded by the original partners under the goodwill method. D is incorrect. The requirement is to determine the amount of goodwill implied by Zorn’s investment. Zorn is investing $100,000 for a 1/3 interest in the partnership. Therefore, $100,000 represents 1/3 of the value of the equity of the new partnership ($100,000 ÷ 1/3 = $300,000). The tangible portion of the equity is $250,000 ($60,000 + $90,000 + $100,000). Thus, the total implied goodwill is $50,000 ($300,000 – $250,000). All of this goodwill is credited to the capital accounts of the original partners, as shown below. | | Total | Dunn | Grey | Zorn | | Capital before admission | $150,000 | $60,000 | $ 90,000 | -- | | Contribution by Zorn | 100,000 | | | $100,000 | | Revaluation to FV | 50,000 | 25,000 | 25,000 | ______ | | Total capital | $300,000 | $85,000 | $115,000 | $100,000 | | Percent interest | | 28.3% | 38.3% | 33.3% |
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