Peter, Roberts, and Dana have the following capital balances; $80,000, $100,000 and $60,000, respectively. The partners share profits and losses 20%, 40%, and 40% respectively. Roberts retires and is paid $160,000 based on an independent appraisal of the business. If the goodwill method is used, what is the capital balance of Peter?
A) $20,000.
B) $60,000.
C) $110,000.
D) $120,000.
E) $230,000.
Roberts receives an additional $60,000 above her capital balance. Since she is assigned 40 percent of all profits and losses, this extra allocation indicates total goodwill of $150,000, which must be split among all partners.
40% of Goodwill = $60,000
)40 G = $60,000
G = $150,000 and Peter receives 20% = $30,000.
Peter's balance = $80,000 + $30,000 = $110,000.

Question

Quizplus · Accepted Answer

Using the goodwill method, the total goodwill is calculated as $150,000. Since Roberts receives an additional $60,000 above her capital balance, this indicates that her share of the goodwill is $90,000. The remaining $60,000 of goodwill is split between Peter and Dana, with Peter receiving 20% or $30,000. Thus, Peter's final capital balance becomes $80,000 + $30,000 = $110,000. Therefore, the correct choice is C.

Peter, Roberts, and Dana Have the Following Capital Balances; $80,000