Note: This is a Kaplan CPA Review Question
James Dixon, a partner in an accounting firm, decided to withdraw from the partnership. Dixon's share of the partnership profits and losses was 20%. Upon withdrawing from the partnership he was paid $74,000 in final settlement for his interest. The total of the partners' capital accounts before recognition of partnership goodwill prior to Dixon's withdrawal was $210,000. After his withdrawal the remaining partners' capital accounts, excluding their share of goodwill, totaled $160,000. The total agreed upon goodwill of the firm was
A) $250,000.
B) $140,000.
C) $160,000.
D) $120,000.

Question

Quizplus · Accepted Answer

The difference in the capital accounts before and after Dixon's withdrawal is $50,000 ($210,000 - $160,000). Since Dixon received $74,000, the excess of $24,000 ($74,000 - $50,000) represents his 20% share of the goodwill. Therefore, the total goodwill is $120,000 ($24,000 / 20%).

Note: This Is a Kaplan CPA Review Question