In the AD partnership,Allen's capital is $140,000 and Daniel's is $40,000 and they share income in a 3:1 ratio,respectively.They decide to admit David to the partnership.Each of the following questions is independent of the others.
-Refer to the information provided above.David directly purchases a one-fifth interest by paying Allen $34,000 and Daniel $10,000.The land account is increased before David is admitted.What are the capital balances of Allen and Daniel after David is admitted into the partnership?

Question

Quizplus · Accepted Answer

First, we need to determine the total capital of AD partnership before David's admission: 
Allen's capital = $140,000 
Daniel's capital = $40,000 
Total capital = $140,000 + $40,000 = $180,000

Next, we need to calculate David's capital contribution: 
David paid $34,000 to Allen for a one-fifth interest, which means that the total value of the one-fifth interest is: 
$34,000 ÷ 1/5 = $170,000

Therefore, David's capital contribution is $170,000 - $10,000 = $160,000.

Now, we can calculate the total capital of the new partnership: 
Total capital = $180,000 + $160,000 = $340,000

Using the income sharing ratio of 3:1, we can calculate the new capital balances for Allen and Daniel: 
Allen's capital = 3/4 x $340,000 = $255,000 
Daniel's capital = 1/4 x $340,000 = $85,000

Therefore, the capital balances of Allen and Daniel after David is admitted into the partnership are $255,000 and $85,000, respectively. 
Option C is the correct answer.

In the AD Partnership,Allen's Capital Is $140,000 and Daniel's Is