In the RST partnership,Ron's capital is $80,000,Stella's is $75,000,and Tiffany's is $50,000.They share income in a 3:2:1 ratio,respectively.Tiffany is retiring from the partnership.Each of the following questions is independent of the others.
-Refer to the above information.Tiffany is paid $56,000,and all implied goodwill is recorded.What is the total amount of goodwill recorded?

Question

Quizplus · Accepted Answer

Since Tiffany is retiring, the remaining partners need to record goodwill (an intangible asset) to account for the value of Tiffany's contribution to the partnership. The total goodwill recorded is calculated as follows:

Total Purchase Price - Total Book Value of Equity = Goodwill

The Total Purchase Price is the amount paid to Tiffany for her share of the partnership. This is given as $56,000 in the question.

The Total Book Value of Equity is the sum of the capital accounts of the remaining partners:

$80,000 (Ron) + $75,000 (Stella) = $155,000

The ratio of the income sharing is 3:2:1, which means Tiffany's share is 1/6 of the total. So, her capital account is 1/6 of the total capital:

$155,000 (total capital) / 6 = $25,833.33

Therefore, the Total Book Value of Equity is $155,000 + $25,833.33 = $180,833.33

Now, we can calculate the goodwill:

$56,000 (Total Purchase Price) - $180,833.33 (Total Book Value of Equity) = -$124,833.33

Since this is a negative value, it means that there is no goodwill recorded. This is because Tiffany's share of the income was not enough to justify paying more than the book value of her capital account. Therefore, the answer is A) $0.

In the RST Partnership,Ron's Capital Is $80,000,Stella's Is $75,000,and Tiffany's