Chase and Hatch are partners and share equally in income or loss. Chase's current capital balance is $135,000 and Hatch's is $120,000. Chase and Hatch agree to accept Flax with a 30% interest in the partnership. Flax invests $115,000 in the partnership. The balances in Chase's and Hatch's capital accounts after admission of the new partner equal:
A) Chase $135,000; Hatch $120,000.
B) Chase $137,000; Hatch $122,000
C) Chase $133,000; Hatch $118,000.
D) Chase $139,000; Hatch $120,000.
E) Chase $135,000; Hatch $124,000.

Question

Quizplus · Accepted Answer

Before the admission of Flax, the total capital balance in the partnership was $255,000 ($135,000 + $120,000).

After Flax's admission, the total capital balance in the partnership becomes $370,000 ($255,000 + $115,000).

Since Flax is investing with a 30% interest, the remaining 70% is divided equally between Chase and Hatch.

Thus, Chase and Hatch will each have a 35% interest in the partnership after Flax's admission.

Chase's new capital balance will be $135,000 + (0.35 x $115,000) = $137,250.

Hatch's new capital balance will be $120,000 + (0.35 x $115,000) = $122,250.

Therefore, the correct answer is B) Chase $137,000; Hatch $122,000.

Chase and Hatch Are Partners and Share Equally in Income