Question

Please explain how you do this?

RD formed a partnership on February 10, 20X9. R contributed cash of $150,000, while D contributed inventory with a fair value of $120,000. Due to R's expertise in selling, D agreed that R should have 60 percent of the total capital of the partnership. R and D agreed to recognize goodwill. What is the total capital of the RD partnership and the capital balance of R after the goodwill is recognized?

	Total Capital			R, Capital
A)	$	450,000			$	270,000
B)	$	330,000			$	198,000
C)	$	300,000			$	180,000
D)	$	270,000			$	162,000

Answer 1

Original Capital ($150000+$120000)	$270,000
Implied Value = $150000/60%	250000
Implied value is less than the original value, thus goodwill be calculated as follow:
R Investment = 60% (Original capital + Goodwill)
$150000+Goodwill = 60%($120000+$150000+Goodwill)
$150000+Goodwill = $162000 +0.60Goodwill
0.40 Goodwill = $12000
Goodwill = $12000/0.40
Goodwill = $30000
The investment made by R is $150000+$30000 for goodwill, thus the total investment will be $180000 for 60% interest.
C. Total Capital = $300000 ($180000+$120000)
R Capital = $180000 ($150000+$30000 goodwill)