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Eagle and Falk are partners with capital balances of $45,000 and $25,000, respectively. They agree to admit Robb as a partner. After the assets of the partnership are revalued, Robb will have a 25% interest in capital and profits, for an investment of $30,000. What amount should be recorded as goodwill to the original partners?

A) $0

B) $5,000

C) $7,500

D) $20,000

The fair market value must be $120k if $30k is 25%, and the book value is $100k...so I think D, the difference between fair value and book value.

Passed, you nailed it! Here is the answer, with explanation from Lambers CPA review:

D) $20,000

Robb's investment of $30,000 for a 25% partnership interest represents an objective basis for the determination of the fair value of the partnership and for the calculation of goodwill. If $30,000 is 25% of the fair value of the partnership, then the total fair value is $120,000 ($30,000 / 25%). The difference between the fair value of the partnership ($120,000) and the total book value of the three partner's capital of $100,000 ($45,000 + $25,000 + $30,000) is goodwill of $20,000.

Today's question: BEC

Generally, under the Revised Uniform Partnership Act, a partnership has which of the following characteristics?

A) Unlimited duration
B) Obligation for payment of federal income tax
C) Unlimited duration & obligation for payment of federal income tax
D) Neither unlimited duration nor obligation for payment of federal income tax

Answer to yesterday's question:

D) Neither unlimited duration nor obligation for payment of federal income tax

Explanation: A partnership is not usually considered to be a separate legal entity. Specifically, a partnership does not pay federal income tax. A partnership does not have perpetual existence like a corporation.

Today's question will cover Regulation and will be posted later this afternoon.

Today's Question: REG

On September 10, Harris, Inc., a new car dealer, placed a newspaper advertisement stating that Harris would sell 10 cars at its showroom for a special discount only on September 12, 13, and 14. On September 12, King called Harris and expressed an interest in buying one of the advertised cars. King was told that five of the cars had been sold and to come to the showroom as soon as possible. On September 13, Harris made a televised announcement that the sale would end at 10:00 p.m. that night. King went to Harris' showroom on September 14 and demanded the right to buy a car at the special discount. Harris had sold the 10 cars and refused King's demand. King sued Harris for breach of contract. Harris's best defense to King's suit would be that Harris' _________________

A) offer was unenforceable.

B) advertisement was not an offer.

C) television announcement revoked the offer.

D) offer had not been accepted.

Answer to yesterday's question:

B) Advertisement was not an offer.

Explanation: Advertisements and price quotes are not usually offers, they are invitations to deal. The remaining answer choices are incorrect because no offer was made.

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Today's question: FAR

Ray Corp. declared a 5% stock dividend on its 10,000 issued and outstanding shares of $2 par value common stock, which had a fair value of $5 per share before the stock dividend was declared. This stock dividend was distributed 60 days after the declaration date. By what amount did Ray's current liabilities increase as a result of the stock dividend declaration?

A) $0

B) $500

C) $1,000

D) $2,500

Answer to Friday's question:

A) $0

Explanation: Declaration of a stock dividend does not affect current liabilities as the dividend will not be satisfied with the current assets of the corporation. Rather, shares of stock will be issued to satisfy the dividend. A stock dividend results in a transfer between equity accounts only, the decrease in retained earnings being offset by an equal increase in the paid-in capital accounts.