Question

Following are the capital account balances for the William, Jennings, and Bryan partnership:

William (45% of gains and losses) $ 150,000

Jennings (45%) 100,000

Bryan (10%) 80,000

Darrow invests $250,000 in cash for a 30 percent ownership interest. The money goes to the business. No goodwill or other revaluation is to be recorded. After the transaction, what is Jennings’s capital balance?

Answer 1

Total Capital after Darrow's investment = $ 150,000 + 100,000 + 80,000 + 250,000

= $580,000

Darrow's share = 30% of $580,000

= $174,000

Bonus Amount = $ 250,000 - 174,000

$76,000

Hence 45% of 76,000 will be assigned to Jennings Capital

Therefore

Jennings Capital = 100,000 + 45% of 76,000

= $134,200