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 Hanes'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 Hanes's capital account after the new partnership is created?

Quizplus · Accepted Answer

Firstly, we need to calculate the total capital balance of the partnership before the admission of May:

Total Capital = $320,000 ($200,000 for Donald and $120,000 for Hanes)

May's capital investment = $100,000

May's new share (35%) of total capital = $140,000

New total capital after May's admission = $460,000

We can now calculate Hanes's new capital balance:

Hanes's share of total capital before May's admission = 2/5 x $320,000 = $128,000

Hanes's share of total capital after May's admission = 2/5 x $460,000 = $184,000

Therefore, Hanes's new capital balance after May's admission is $184,000 - May's capital investment ($100,000) = $84,000.

Thus, the correct answer is A).

The Capital Account Balances for Donald & Hanes LLP on January