The capital account balances for Donald & Hanes LLP on January 1, 2011, 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, 2011, 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

The total capital balance before admitting May is ($120,000 + $80,000) = $200,000.

May invests $100,000, which is 35% of the new partnership capital. Therefore, the total new partnership capital is:

$100,000 / 0.35 = $285,714.29

Donald and Hanes will split the remaining 65% of the new partnership capital based on their existing ratio of 3:2.

Donald's share of the new partnership capital is:

(3 / 5) x 65% x $285,714.29 = $328,571.43

Therefore, the balance of Donald's capital account after the new partnership is created is:

$328,571.43 + $120,000 - $100,000 = $348,571.43

However, we need to reduce this balance by Donald's old capital balance of $80,000:

$348,571.43 - $80,000 = $268,571.43

Therefore, the answer is D, $176,000.

The Capital Account Balances for Donald & Hanes LLP on January