Hewlett and Martin are partners.Hewlett's capital balance in the partnership is $64,000,and Martin's capital balance $67,000.Hewlett and Martin have agreed to share equally in income or loss.The existing partners agree to accept Black with a 20% interest.Black will invest $35,000 in the partnership.The bonus that is granted to Hewlett and Martin equals:
A)$900 each.
B)$1,500 each.
C)$600 each.
D)600 to Hewlett;$900 to Martin.
E)$0,because Hewlett and Martin actually grant a bonus to Black.

Question

Quizplus · Accepted Answer

The bonus to the existing partners is the difference between the amount they would have received if Black had been admitted at book value and the amount they actually receive. Hewlett's capital balance before Black's admission = $64,000Martin's capital balance before Black's admission = $67,000Total capital before Black's admission = $64,000 + $67,000 = $131,000Black's investment = $35,000Total capital after Black's admission = $131,000 + $35,000 = $166,000Hewlett's capital balance after Black's admission at book value = $64,000 / $131,000 * $166,000 = $82,519.05Martin's capital balance after Black's admission at book value = $67,000 / $131,000 * $166,000 = $83,480.95Bonus to Hewlett = $82,519.05 - $64,000 = $18,519.05Bonus to Martin = $83,480.95 - $67,000 = $16,480.95Total bonus to existing partners = $18,519.05 + $16,480.95 = $35,000Bonus to each partner = $35,000 / 2 = $17,500Therefore, the bonus granted to Hewlett and Martin each is $17,500.

Hewlett and Martin Are Partners