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Homework answers / question archive / A partnership has the following capital balances with partners' profit and loss percentages indicated parenthetically: Burks (50% ) $140,000 Donovan (25%) 240,000 Watkins (25%) 340,000 Ranzilla agrees to pay a total of $240,000 directly to these three partners to acquire a 25 percent ownership interest from each
A partnership has the following capital balances with partners' profit and loss percentages indicated parenthetically:
Burks (50% ) $140,000 Donovan (25%) 240,000 Watkins (25%) 340,000
Ranzilla agrees to pay a total of $240,000 directly to these three partners to acquire a 25 percent ownership interest from each. The partnership will record goodwill based on the new partner's payment. What is Donovan's capital balance after the transaction?
Multiple Choice 0 $225,000 0 $180,000 0 $240,000 0 $215,000
Computation of Donovan's Capital Balance after the Transaction:
Capital invested by Ranzilla for 25% interest = $240,000
Total capital of partnership = $240,000 / 25% = $960,000
Existing capital of partnership = $140,000 + $240,000 + $340,000 = $720,000
Goodwill to be recorded = $960,000 - $720,000 = $240,000
Donovan share in goodwill = $240,000*25% = $60,000
Donovan capital after recording the goodwill = $240,000 + $60,000 =$300,000
Donovan's Capital Balance after the Transaction = $300,000 - ($300,000*25%) = $225,000
So, the correct option is 1st "$225,000".
