Question

partnership has three partners, Bell, Casey and Duffy, with capital balances of $50,000, $60,000, and $70,000 respectively. The partners share income equally. Duffy retires and is paid using the personal assets of Bell and Casey.

Which statement is true concerning the accounting for this transaction?

	A.	If the total paid to Duffy is more than $70,000, implied goodwill is recognized.
	B.	Bell and Casey are required to pay Duffy equal amounts of personal assets, as specified in their income-sharing agreement.
	C.	Recognition of goodwill is unlikely since there is no arm's-length transaction.
	D.	Bell and Casey are required to pay Duffy a total of $70,000.

Answer 1

Ans:

Bell, Casey and Duffy, with capital balances of $50,000, $60,000, and $70,000 respectively.

Now if Duffy retires and amount paid to Duffy is more than $70,000 that means business also have some goodwill which is not yet to be recognised. In case of implied Goodwill impairment to recognised goodwill is to be done. Therefore Option A & C are incorrect.

Also in case of any goodwill to be recognised amount to be paid to Duffy will be less or more than $70,000. So option D is also incorrect.

Now all partners shares profit equally. So Amount paid to retiring partners should also be distributed equally between paying partners.

So Correct answer is option B.

Bell and Casey are required to pay Duffy equal amounts of personal assets, as specified in their income-sharing agreement.

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