In the AD partnership,Allen's capital is $140,000 and Daniel's is $40,000 and they share income in a 3:1 ratio,respectively.They decide to admit David to the partnership.Each of the following questions is independent of the others.
-Refer to the information provided above.David invests $50,000 for a one-fifth interest.What amount of goodwill will be recorded?

Question

Quizplus · Accepted Answer

Since David is investing $50,000 for a one-fifth interest, this means that the total value of the partnership is $50,000 x 5 = $250,000.
The existing partners (Allen and Daniel) had a total capital of $140,000 + $40,000 = $180,000, which means that the goodwill is $250,000 - $180,000 = $70,000.
Since David is getting one-fifth of the partnership (or 20%), his share of the goodwill is $70,000 x 20% = $14,000. However, since David's investment is $50,000, the total goodwill that should be recorded is $14,000 + $50,000 = $64,000.
Therefore, the answer is A) $20,000, as none of the provided options is the correct answer.

In the AD Partnership,Allen's Capital Is $140,000 and Daniel's Is