P, L, and O are partners with capital balances of $50,000, $30,000 and $20,000 and who share in the profit and loss of the PLO partnership 30%, 20%, and 50%, respectively, when they agree to admit C for a 20% interest.C contributes $38,000 to the partnership and the bonus method is used. What amount will be credited for C's beginning capital balance?
A) $20,000
B) $25,000
C) $27,600
D) $32,600
E) $38,000

Question

Quizplus · Accepted Answer

The bonus method involves adjusting the existing partners' capital accounts to reflect the new partner's contribution. C contributes $38,000 for a 20% interest, implying the total partnership value is $190,000 ($38,000 / 20%). The existing capital is $100,000 ($50,000 + $30,000 + $20,000), so the bonus to existing partners is $90,000 ($190,000 - $100,000). C's capital balance is $27,600, calculated as $38,000 - ($90,000 * 20%).

P, L, and O Are Partners with Capital Balances of $50,000