The capital account balances for Donald & Hanes LLP on January 1, 2018, were as follows: Donald, capital $ 200,000 Hanes, capital 100,000 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. What is the balance of Donald's capital account after the new partnership is created?

Question

Music Man

Business

23 February, 23:23

The capital account balances for Donald & Hanes LLP on January 1, 2018, were as follows: Donald, capital $ 200,000 Hanes, capital 100,000 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. What is the balance of Donald's capital account after the new partnership is created?

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Peyton Barton · Answer 1

Donalds share in the capital was 100,000/300,000 = 1/3

May bought 35% so 0.35 of 300,000 = 105,000

Out of this 105,000 1/3 was donalds share so, 1/3*105,000=34,650

Donalds new share = 100,000 - 34,650 = 65,350

$65,350 is Donalds new capital account balance

Explanation:

Step 1: Find out Donalds ratio of capital

Step 2: Find out how much may needed to invest for a 35% share

Step 3: Multiply Mays share by 1/3 to find out how much of that share will be bought from donald

Step 4: Subtract the amount from Donalds original capital balance