At December 31, 2017, Mick and Keith are partners with capital balances of $250,000 and $150,000, and they share profits and losses in the ratio of 2:1, respectively. On this date, Jumpin Jack invests $125,000 cash for a one-fifth interest in the capital and profit of the new partnership. The partners agree that the implied partnership goodwill is to be recorded simultaneously with the admission of Jumpin Jack. The total implied goodwill of the firm is:

Question

Quizplus · Accepted Answer

The total implied value of the partnership after Jumpin Jack's investment is calculated by taking his investment of $125,000 and dividing it by his one-fifth interest, resulting in a total implied value of $625,000 for the partnership. The original partners had a combined capital of $400,000 ($250,000 + $150,000). The difference between the implied total value ($625,000) and the original capital ($400,000) is $225,000. However, since Jumpin Jack brought in $125,000, the implied goodwill is the difference between the new total implied value and the total capital including Jumpin Jack's contribution, which is $225,000 - $125,000 = $100,000.

At December 31, 2017, Mick and Keith Are Partners with Capital