Question
In: Accounting
The capital account balances for Donald & Hanes LLP on January 1, 2011, were as follows:...
The capital account balances for Donald & Hanes LLP on January 1, 2011, were as follows:
Donald, capital : $200000
Henes, capital: $100000
Donald and Hanes shared net income and losses in the ratio of 3:2, respectively. The partners agreed to admit May to the partnership with a 35% interest in partnership capital and net income. May invested $100,000 cash, and no goodwill was recognized.
Question :
What is the balance of Donald's capital account after the new partnership is created?
A. $84,000.
B. $100,000.
C. $140,000.
D. $176,000.
E. $200,000.
Solutions
Expert Solution
After the new investment of $100000 by May, the total capital becomes $400,000 ($200,000 + $100000 + $100000) . As May's portion is to be 35 percent, the capital balance of May would be $140000 ($400,000 × 35%). Since only $100000 has been paid by May, a bonus of $40000 ($140000 - $100000) must be taken from the two original partners based on their profit and loss ratio of 3:2.
Amount that will be withdrawn by Donald = $40000 x (3/5) = $24000 and,
Amount withdrawn by Henes = $40000 x (2/5) = $16000
The reduction drops Donald's capital balance from $200,000 to $200000 - $24000 = $176000
ekkarill92 answered 2 years agoRelated Solutions
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