Use the following information to answer Questions .
The capital balances of the DEF Partnership are as follows:
$$\begin{array} { | l | r | }
\hline \text { Danielson } & \$ 180,000 \
\hline \text { Eklund } & 95,000 \
\hline \text { Forsberg } & \underline { 150,000 } \
\hline \text { Total } & \$ 425,000 \
\hline
\end{array}$$ The partners' income sharing ratio is: Danielson, 25%; Eklund, 45%; Forsberg, 30%.
Gustafson joins the partnership by contributing $125,000 to the partnership for a 20% interest in partnership capital. Assume the partnership's identifiable net assets are carried at amounts approximating fair value.
-If the goodwill method is used to record the admission of Gustafson, goodwill will be recorded on the books of the partnership in the amount of:

Question

Use the following information to answer Questions .
The capital balances of the DEF Partnership are as follows:
 $$\begin{array} { | l | r | } 
\hline \text { Danielson } & \$ 180,000 \
\hline \text { Eklund } & 95,000 \
\hline \text { Forsberg } & \underline { 150,000 } \
\hline \text { Total } & \$ 425,000 \
\hline
\end{array}$$ The partners' income sharing ratio is: Danielson, 25%; Eklund, 45%; Forsberg, 30%.
Gustafson joins the partnership by contributing $125,000 to the partnership for a 20% interest in partnership capital. Assume the partnership's identifiable net assets are carried at amounts approximating fair value.
-If the goodwill method is used to record the admission of Gustafson, goodwill will be recorded on the books of the partnership in the amount of:

Quizplus · Accepted Answer

Gustafson's contribution of $125,000 for a 20% interest implies a total implied partnership value of $625,000 ($125,000 / 20%). The book value before Gustafson's admission was $425,000. Therefore, the goodwill recognized is the difference between the implied value and the book value, which is $625,000 - $425,000 = $200,000. However, since Gustafson is buying into the partnership, the goodwill attributable to his purchase is 20% of $200,000, which is $40,000. This was a mistake in the initial calculation provided in the options, leading to confusion. The correct approach to calculate the goodwill specifically associated with Gustafson's entry would consider the excess amount he paid relative to the book value of the share he acquired in the partnership. Given the options provided and the typical method of calculating goodwill in such scenarios, none directly reflect this corrected calculation. The closest option based on the initial explanation would have been $200,000 reflecting the total goodwill before considering Gustafson's specific share, but this does not align with the correct method for calculating goodwill attributable to an incoming partner's purchase. Therefore, an error in the initial explanation led to a mismatch with the provided options.

Use the Following Information to Answer Questions The Partners' Income Sharing Ratio Is: Danielson, 25%; Eklund, 45%;