McC and New are partners with capital balances of $70,000 and $50,000, respectively, and they share profit and losses equally. Oak is admitted to the partnership with a contribution to the partnership of $50,000 cash for a one third interest in the partnership capital and in future profits and losses.
1. If the goodwill is recognized in accounting for the admission of Oak, what amount of goodwill will be recorded?
a $60,000
b $20,000
c $10,000
d $6,667
2. If no goodwill is recognized, the capital balances of McC and New immediately after the admission of Oak will be:
a McC, $65,000; New, $45,000
b McC, $66,667; New, $46,666
c McC, $67,500; New, $47,500
d McC, $70,000; New, $50,000