At December 31, 2017, Mick and Keith Are Partners with Capital

question 35

Multiple Choice

At December 31, 2017, Mick and Keith are partners with capital balances of $250,000 and $150,000, and they share profits and losses in the ratio of 2:1, respectively. On this date, Jumpin Jack invests $125,000 cash for a one-fifth interest in the capital and profit of the new partnership. The partners agree that the implied partnership goodwill is to be recorded simultaneously with the admission of Jumpin Jack. The total implied goodwill of the firm is:

• A) $25,000.
• B) $20,000.
• C) $45,000.
• D) $100,000.

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Definitions:

Sales Increase

The rise in the volume or value of sales of goods or services over a specified period compared to a previous period.

Sustainable Growth Rate

The maximum rate at which a company can grow its revenues and earnings without borrowing new funds or seeking additional investment.

Retention Ratio

The proportion of net income that is retained by a company, rather than distributed to shareholders as dividends.

Receivables Balance

The total amount of money owed to a company by its customers for goods or services that have been delivered or used but not yet paid for.