Question

Floyd and Merriam start a partnership business on June 12, 2019. Their capital account balances as...

Floyd and Merriam start a partnership business on June 12, 2019. Their capital account balances as of December 31, 2020 stood as follows:

Floyd $55,000​
Merriam 17,000​

They agreed to admit Ramelow into the business for a one-third interest in the new partnership. Ramelow contributes $24,000 cash in exchange for the partnership interest.

What is the correct capital account balance of Ramelow after he enters the business?

a)$28,000

b)$32,000

c)$55,000

d)$24,000
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Answer #1

Option B) $32,000 is correct

Explanation:

Total Capital of the new partnership = Floyd's Capital + Merriam's Capital + Ramelow's Contribution

   = $55,000 + $17,000 + $24,000

= $96,000

Ramelow's Interest is One-third in the partnership, therefore

Ramelow's Capital = Total Capital * (1/3)

= $96,000 * (1/3)

= $32,000

Ramelow's Capital account balance after he enters the partnership is $32,000

(NOTE : This implies that Ramelow got a bonus of $8,000 ($32,000 - $24,000) by entering into the partnership , and this bonus will be distributed to the old partner's)

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