When the Goodwill Method Is Used and the Book Value

question 10

Multiple Choice

When the goodwill method is used and the book value acquired is less than the value of the assets invested, total implied capital is computed by:

• A) multiplying the new partner's capital interest by the capital balances of existing partners.
• B) dividing the total capital balances of existing partners by their collective capital interest.
• C) dividing the new partner's investment by his (her) capital interest.
• D) dividing the new partner's investment by the existing partners' collective capital interest.

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Definitions:

Cash Disbursements

Payments made in cash by a business during a period of time.

Raw Materials Purchases

The total cost of raw materials bought by a company for production purposes during a specific time frame.

Cash Balance

Represents the amount of cash a company has on hand or in its bank accounts at any given time.

Cash Receipts

The total amount of money received by a business or individual within a given period through transactions or other forms of payment.