The capital account balances for Donald & Hanes LLP on January 1, 2021, were as follows: Donald and Hanes shared net income and losses in the ratio of 3:2, respectively. The partners agreed to admit May to the partnership with a 35% interest in partnership capital and net income. May invested $100,000 cash, and no goodwill was recognized.What is the balance of Donald's capital account after the new partnership is created?

Question

The capital account balances for Donald & Hanes LLP on January 1, 2021, were as follows:  Donald and Hanes shared net income and losses in the ratio of 3:2, respectively. The partners agreed to admit May to the partnership with a 35% interest in partnership capital and net income. May invested $100,000 cash, and no goodwill was recognized.What is the balance of Donald's capital account after the new partnership is created?

Quizplus · Accepted Answer

First, we need to calculate the total capital of the partnership before May's admission:
Donald = $120,000
Hanes = $80,000
Total capital = $120,000 + $80,000 = $200,000
May invested $100,000, so her interest in partnership capital is 35%, or $70,000.

Next, we need to adjust the capital balances for the admission of May:
Donald's new capital balance = $120,000 * 3/5 = $72,000
Hanes's new capital balance = $80,000 * 2/5 = $32,000
May's capital balance = $70,000

The total capital of the partnership after May's admission is:
$72,000 + $32,000 + $70,000 = $174,000

Therefore, Donald's new capital balance is:
$174,000 - $70,000 = $104,000, or choice D.

The Capital Account Balances for Donald & Hanes LLP on January