Track and Smith are partners sharing profits and losses in a 3:2 ratio.Their capital balances are $10,000 and $20,000,respectively.The partners agree to admit Don for $10,000 for a 30% interest in the partnership.Smith's capital balance after admitting Don is:

Question

Quizplus · Accepted Answer

The total capital of the partnership before admitting Don is $30,000 ($10,000 for Track and $20,000 for Smith). After Don's admission, the total capital becomes $40,000 ($30,000 + $10,000). Don's investment of $10,000 represents a 30% interest in the partnership, so the total value of the partnership must be 100%/30% times Don's investment:

$10,000 ÷ 0.30 = $33,333.33

This means that after Don's admission, the partnership's new profit and loss sharing ratio will be:

Track: $10,000 ÷ $33,333.33 = 0.30, or 30%
Smith: $20,000 ÷ $33,333.33 = 0.60, or 60%
Don: $10,000 ÷ $33,333.33 = 0.30, or 30%

Therefore, Smith's new capital balance will be:

$20,000 × 0.60 = $12,000

So the answer is B, $12,000.

Track and Smith Are Partners Sharing Profits and Losses in a 3:2