Question

Following are the capital account balances for the William, Jennings, and Bryan partnership:

William (45% of gains and losses)	$	160,000
Jennings (45%)		110,000
Bryan (10%)		90,000

Darrow invests $250,000 in cash for a 30 percent ownership interest. The money goes to the business. No goodwill or other revaluation is to be recorded. After the transaction, what is Jennings’s capital balance?

Multiple Choice

$130,100

$140,150

$185,000

$110,000

Answer 1

Solution:

Ratio of profit between existing partner = 4.5:4.5:1

Total capital after new capital introduced by Darrow = $160,000 + $110,000 + $90,000 + $250,000 = $610,000

Darrow share in Partnership = 30%

Therefore required share of capital by Darrow = $610,000 * 30% = $183,000

Bonus Capital introduced by Darrow = $250,000 - $183,000 = $67,000

Bonus capital will be distributed in William, Jennings and Bryan in ratio of 4.5:4.5:1

Jennings capital balance after this transaction = Existing balance + Share in bonus = $110,000 + ($67,000*45%) = $140,150

Hence 2nd option is correct.

Kite Share = 8820/4*1 = $2,205

Therefore entry to record smith admission would include a credit of $2,205 to Kite Capital