Question

Hewlett and Martin are partners. Hewlett's capital balance in the partnership is $63,000, and Martin's capital balance $60,000. 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 $35,200 in the partnership. The bonus that is granted to Hewlett and Martin equals:

• $3,520 each.

• $1,780 each.

• $1,803 each.

• 1,803 to Hewlett; $1,760 to Martin.

• $0, because Hewlett and Martin actually grant a bonus to Black.

Answer 1

Solution:

Calculation of Partnership Capital:

Hewlett"s Capital = $63,000

Martin's Capital = $60,000

Black"s Investment = $35,200

Therefore total Paid in Capital after admission of New Partner = 63,000 + 60,000 + 35,200

= $158,200

Now,

As we Know New Partner i.e Black Invested for 20 % share

Therfore New Partner Capital = Total Paid up Capital * New partner share

So, Black Capital = $158,200 * 20 %

= $31,640

Calculation of Bonus

In the given question black has invested $35,200 for capital allocation of $31,640.

Therefore Bonus = New partner Investemnt - New Partner Capital Allocation

= $ 35,200 - $ $31,640

Bonus =$ 3,560

Now this bonus will be distributed among existing partner i.e Hewlett and Martin in thier Profit share ratio which is equally.

Therfore Hewitt Share = $3560 * 50 % = $1,780

Martin Share = $3560 * 50 % = $1,780

Therfore option with $1,780 each is the correct option.