Question

Bell and Carson are partners who share profits and losses 3:7. The capital accounts on January 1,

2011, are $120,000 and $160,000, respectively. Elston is to be admitted as a partner with a one-

fourth interest in the capital and profits and losses by investing $80,000. Goodwill is not to be

recorded. The capital balances after admission should be: (Please show work)

a. Bell, $117,000; Carson, $153,000; Elston, $90,000

b. Bell, $120,000; Carson, $160,000; Elston, $90,000

c. Bell, $123,000; Carson, $160,000; Elston, $80,000

e. Bell, $120,000; Carson, $167,000; Elston, $80,000

Answer 1

Solution:

Ratio of profit between Bell and Carson = 3:7

Total capital after new capital introduced by Elston = $120,000 + $160,000 +$80,000 = $360,000

Elston share in Partnership = 1/4

Therefore, required share of Capital by Elston = $360,000 *1/4 = $90,000

Bonus capital introduced by Elston = $80000 - $90000 = - $10,000

Bonus will given by old partners in the ratio of 3:7 to new partner Elston.

Amount Given by Bell = $10,000 *3/10 = $3,000

Amount given by Carson = $10,000 *7/10 = $7,000

The capital Balance after admission:

Bell = $120,000 - $3000 = $117,000

Carson = $160,000 - $7,000 = $153,000

Elston = $90,000

Hence, option "a" is correct.