In the AD partnership, Allen's capital is $140,000 and Daniel's is $40,000 and they share income in a 3:1 ratio, respectively. They decide to admit David to the partnership. Each of the following questions is independent of the others.
-Refer to the information provided above. David directly purchases a one-fifth interest by paying Allen $34,000 and Daniel $10,000. The land account is increased before David is admitted. What are the capital balances of Allen and Daniel after David is admitted into the partnership?
A) Option A
B) Option B
C) Option C
D) Option D

Question

In the AD partnership, Allen's capital is $140,000 and Daniel's is $40,000 and they share income in a 3:1 ratio, respectively. They decide to admit David to the partnership. Each of the following questions is independent of the others.
-Refer to the information provided above. David directly purchases a one-fifth interest by paying Allen $34,000 and Daniel $10,000. The land account is increased before David is admitted. What are the capital balances of Allen and Daniel after David is admitted into the partnership? 
A) Option A 
B) Option B 
C) Option C 
D) Option D

Quizplus · Accepted Answer

Before David is admitted, the total capital in the firm is $180,000 (Allen's $140,000 + Daniel's $40,000). David purchases a one-fifth interest, which means that the total capital after he is admitted will be five times what he paid ($34,000 + $10,000 = $44,000). Therefore, the total capital after David is admitted will be $220,000 ($44,000 x 5). 
Since the sharing ratio is 3:1, respectively, Allen's share of the income will be 3/4 of the total, and Daniel's share will be 1/4 of the total. Therefore, Allen's share of the total capital will be 3/4 of $220,000, or $165,000. Daniel's share of the total capital will be 1/4 of $220,000, or $55,000. 
However, we also know that David paid Allen $34,000 and Daniel $10,000 for his one-fifth interest. This means that each one-fifth interest is worth $44,000 ($34,000 + $10,000). Therefore, the total value of Allen and Daniel's interests before David joined the partnership was $176,000 ($44,000 x 4). Allen's share of this amount was 3/4 of $176,000 or $132,000. Daniel's share of this amount was 1/4 of $176,000, or $44,000. 
Adding the amounts that Allen and Daniel received from David to their previous capital balances, we get:
- Allen: $140,000 + $132,000 = $272,000
- Daniel: $40,000 + $44,000 = $84,000
Therefore, the capital balances of Allen and Daniel after David is admitted into the partnership are Option C.

In the AD Partnership, Allen's Capital Is $140,000 and Daniel's