Austin invests $80,000 for a 20 percent interest in a partnership that has capital totaling $300,000 after admitting Austin.Which of the following is true?
A)The original partners received a bonus of $20,000.
B)Austin received a bonus of $20,000.
C)Austin's capital is $80,000.
D)The original partners' capital in the business was $240,000 before admitting Austin.

Question

Quizplus · Accepted Answer

Austin's investment of $80,000 for a 20% interest implies the total capital is valued at $400,000 ($80,000 / 0.20). Since the capital totals $300,000 after admitting Austin, the original capital was $220,000 ($300,000 - $80,000). The difference between the implied value of $400,000 and the actual total capital of $300,000 is $100,000, which is the bonus the original partners received for the value they created or brought into the partnership.

Austin Invests $80,000 for a 20 Percent Interest in a Partnership