In the JK partnership,Jacob's capital is $140,000,and Katy's is $40,000.They share income in a 3:2 ratio,respectively.They decide to admit Erin to the partnership.Each of the following questions is independent of the others.
-Refer to the information provided above.Jacob and Katy agree that some of the inventory is obsolete.The inventory account is decreased before Erin is admitted.Erin invests $38,000 for a one-fifth interest.What are the capital balances of Jacob and Katy after Erin is admitted into the partnership?

Question

Quizplus · Accepted Answer

First, we need to find the total capital balance of the partnership before Erin's admission:
140,000 (Jacob's capital) + 40,000 (Katy's capital) = 180,000

Next, we need to adjust the inventory account and distribute the loss between Jacob and Katy according to their profit-sharing ratio:
Let's say the inventory was adjusted to $10,000.
The total decrease is $10,000 and is distributed as:
3/5 x $10,000 = $6,000 (Jacob's share)
2/5 x $10,000 = $4,000 (Katy's share)

Jacob's new capital balance = $140,000 - $6,000 = $134,000
Katy's new capital balance = $40,000 - $4,000 = $36,000

The total capital balance before Erin's admission was $180,000. Erin invests $38,000 for a one-fifth interest, which means the total capital balance after Erin's admission should be:
$38,000 x 5 = $190,000

To find the new capital balance of Jacob and Katy after Erin's admission, we need to use the same profit-sharing ratio of 3:2:
Jacob's new capital balance = (3/5) x $190,000 = $114,000
Katy's new capital balance = (2/5) x $190,000 = $76,000

Therefore, the capital balances of Jacob and Katy after Erin is admitted into the partnership are $114,000 and $76,000, respectively. Option C is correct.

In the JK Partnership,Jacob's Capital Is $140,000,and Katy's Is $40,000