Donald, Anne, and Todd have the following capital balances; $40,000, $50,000 and $30,000 respectively. The partners share profits and losses 20%, 40%, and 40% respectively.
Anne retires and is paid $80,000 based on an independent appraisal of the business. If the goodwill method is used, what is the capital of the remaining partners?

Question

Quizplus · Accepted Answer

Anne receives an additional $30,000 above her capital balance. Since she is assigned 40 percent of all profits and losses, this extra allocation indicates total goodwill of $75,000, which must be split among all partners.40% of Goodwill = $30,000Goodwill = $75,000Donald = 20% Goodwill = $15,000 [$40,000 + $15,000] = $55,000Todd = 40% Goodwill = $30,000 [$30,000 + $30,000] = $60,000

Donald, Anne, and Todd Have the Following Capital Balances; $40,000