King and Otto are partners who share profits and losses equally and have capital balances of $560,000 and $490,000, respectively. Pitts is admitted into the partnership by investing $490,000 for a 30% capital interest. The account balance of Otto, Capital after the admission of Pitts would be

Question

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Before admitting Pitts, the total capital in the partnership was $1,050,000 ($560,000 + $490,000). After Pitts' investment, the total capital became $1,540,000 ($560,000 + $490,000 + $490,000).

Pitts' capital interest is 30%, so his share of the total capital is $462,000 ($1,540,000 x 0.3). The remaining capital is shared between King and Otto in equal proportions, which is $539,000 each ($1,078,000 ÷ 2).

Therefore, the account balance of Otto, Capital after the admission of Pitts would be $539,000, which is equal to his pre-admission capital balance.

King and Otto Are Partners Who Share Profits and Losses