The following balance sheet information is for the partnership of Abele, Boule, and Cayman: Figures shown parenthetically reflect agreed profit and loss sharing percentages.
If the assets are fairly valued on the above balance sheet and the partnership wishes to admit Dann as a new 1/5 partner without recording goodwill or bonus, Dann should invest cash or other assets of

Question

The following balance sheet information is for the partnership of Abele, Boule, and Cayman:  Figures shown parenthetically reflect agreed profit and loss sharing percentages.
If the assets are fairly valued on the above balance sheet and the partnership wishes to admit Dann as a new 1/5 partner without recording goodwill or bonus, Dann should invest cash or other assets of

Quizplus · Accepted Answer

To admit Dann as a new partner, the partnership's assets and liabilities must be revalued. The agreed-upon value of the partnership is $1,140,000 (total partners' equity). Since Dann is joining as a 1/5 partner, his investment should be 1/5 of the total partnership's value after revaluation.

After revaluing the assets and liabilities, the partnership's new value is:

$645,000 (assets) - $195,000 (liabilities) = $450,000 (partners' equity)

1/5 of $450,000 is $90,000, so Dann should invest cash or other assets worth $90,000 to become a 1/5 partner.

However, we need to refer to the existing partners' capital accounts to see how much of Dann's investment will go to them.

Abele: (45%) x $450,000 = $202,500 
Boule: (30%) x $450,000 = $135,000 
Cayman: (25%) x $450,000 = $112,500

So the remaining portion of Dann's investment will go towards increasing the partnership's cash account. If we deduct the existing cash account of $150,000 from Dann's required investment of $90,000, we get $60,000.

Therefore, Dann should invest cash or other assets of $90,000, which is closest to option C, $300,000.

The Following Balance Sheet Information Is for the Partnership of Abele