When the goodwill method is used to record the admission of a new partner, total partnership capital increases by an amount:

Question

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When the goodwill method is used to record the admission of a new partner, total partnership capital increases by an amount greater than the new partner's investment. This is because the new partner's investment is recorded at its fair value, and any excess amount is attributed to goodwill, which is then allocated to the existing partners' capital accounts, thus increasing the total partnership capital beyond the new partner's investment.

When the Goodwill Method Is Used to Record the Admission