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 Dana?
A) $ 20,000.
B) $ 60,000.
C) $110,000.
D) $120,000.
E) $230,000.

Question

Quizplus · Accepted Answer

The goodwill is calculated as the excess payment to Roberts over his capital balance, which is $160,000 - $100,000 = $60,000. This goodwill is shared among the partners according to their profit-sharing ratio. Dana's share of the goodwill is 40% of $60,000, which is $24,000. Adding this to Dana's original capital balance of $60,000 gives $84,000. After Roberts is paid, Dana's capital balance is $84,000 + $36,000 (Roberts' remaining balance after payment) = $120,000.

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