Sarno has a capital balance of $42,000 after adjusting the assets to fair market value. Minton contributes $22,000 to receive a 30% interest in the new partnership. The bonus paid by Minton is $2,800.

Question

Quizplus · Accepted Answer

To calculate the new total capital balance after Minton's contribution, we add Minton's contribution of $22,000 to Sarno's existing capital balance of $42,000:

$22,000 + $42,000 = $64,000

Next, we need to determine the value of the partnership's total assets before the adjustment to fair market value. We know that Sarno's capital balance of $42,000 represents 70% of the partnership's equity (since Minton is contributing $22,000 for a 30% interest), so we can set up the following equation to solve for the total equity:

$42,000 / 0.7 = Total equity
$60,000 = Total equity

This means that the partnership's total assets before the adjustment to fair market value were $60,000.

To adjust the assets to fair market value, we need to add $2,800 to the partnership's assets, since that was the bonus paid by Minton:

$60,000 + $2,800 = $62,800

Finally, we can calculate the value of Minton's 30% interest in the partnership by multiplying the total capital balance by 30%:

$64,000 x 0.3 = $19,200

So Minton's interest in the partnership is worth $19,200.

Sarno Has a Capital Balance of $42,000 After Adjusting the Assets