In the LMN partnership,Lynn's capital is $60,000,Marty's is $80,000,and Nancy's is $70,000.They share income in a 4:3:3 ratio,respectively.Nancy is retiring from the partnership.Each of the following questions is independent of the others.
-Refer to the above information.Nancy is paid $76,000,and all implied goodwill is recorded.What is the total amount of goodwill recorded?
A)$20,000
B)$14,000
C)$6,000
D)$0

Question

Quizplus · Accepted Answer

To calculate the amount of goodwill recorded, we need to first find the total value of the partnership before and after Nancy's retirement.

Total value before retirement = Lynn's capital + Marty's capital + Nancy's capital = $60,000 + $80,000 + $70,000 = $210,000

Nancy's share of the partnership = 3/10 of the total value = 3/10 x $210,000 = $63,000

Total value after retirement = Total value before retirement + Nancy's payment = $210,000 + $76,000 = $286,000

New profit-sharing ratio: Lynn = 4/10, Marty = 3/10

Lynn's new share = 4/7 x $286,000 = $163,429

Marty's new share = 3/7 x $286,000 = $122,571

Total new value of the partnership = Lynn's new share + Marty's new share = $286,000

Therefore, the amount of goodwill recorded is $0, since the new value of the partnership is equal to the total value before Nancy's retirement.

In the LMN Partnership,Lynn's Capital Is $60,000,Marty's Is $80,000,and Nancy's