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, Forsberg's capital balance immediately after the addition of Gustafson is:

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, Forsberg's capital balance immediately after the addition of Gustafson is:

Quizplus · Accepted Answer

Gustafson's contribution of $125,000 for a 20% interest implies a total partnership valuation of $625,000 ($125,000 / 20%). The original capital was $425,000, so the implied goodwill is $200,000 ($625,000 - $425,000). Forsberg's share of the goodwill is 30% (his income sharing ratio), which equals $60,000 (30% of $200,000). Adding this to Forsberg's original capital balance of $150,000 results in a new balance of $210,000, not $172,500 as stated. The correct calculation should consider the effect of goodwill on all partners' capital accounts proportionally, but the given choices and explanation seem to have a discrepancy. The correct approach involves allocating the goodwill among the partners according to their profit-sharing ratio, but none of the provided choices accurately reflects Forsberg's capital balance after correctly applying the goodwill method based on the given information. My initial explanation contained a miscalculation. The correct answer should reflect the proper allocation of goodwill, but given the options and the calculation mistake, the intended correct choice might not align with the accurate application of the goodwill method.

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