A local partnership has two partners, Jim and Pam. Jim has a capital balance of $150,000 and Pam has a capital balance of $125,000. These two partners share profits and losses 60 percent (Jim) and 40 percent (Pam). Cece invests $75,000 in cash in the partnership for a 25 percent ownership. The bonus method will be used. What is Cece's capital balance after this new investment?
A) $87,500.
B) $157,500.
C) $142,500.
D) $120,000.
E) $130,000.

Question

Quizplus · Accepted Answer

Cece's capital balance is $157,500. The bonus method allocates the bonus to the old partners based on their profit and loss sharing ratio. In this case, Jim receives 60% of the $32,500 bonus, or $19,500, and Pam receives 40% of the bonus, or $13,000. Cece's capital balance is then $75,000 (her investment) plus $19,500 (her share of the bonus), or $94,500.

A Local Partnership Has Two Partners, Jim and Pam