Question

In the JK partnership, Jacob's capital is $140,000, and Katy's is $40,000. They share income in a 3:2 ratio, respectively. They decide to admit Erin to the partnership. Each of the following questions is independent of the others.

Refer to the information provided above. Jacob and Katy agree that some of the inventory is obsolete. The inventory account is decreased before Erin is admitted. Erin invests $38,000 for a one-fifth interest. What are the capital balances of Jacob and Katy after Erin is admitted into the partnership?
Jacob Katy
A. $140,000 $40,000
B. $134,000 $36,000
C. $123,200 $28,800
D. $118,400 $25,600

Answer 1

C. $123,200 $28,800

Step-by-step explanation:

Provided information, we have:

Existing capital = $140,000 + $40,000 = $180,000

Admission of Erin for 1/5th share = $38,000

Total capital as per Erin share = $38,000
`*` 5 = $190,000

But actual total capital = $180,000 + $38,000 = $218,000

Therefore, inventory written off = $218,000 - $190,000 = $28,000

Jacob = $28,000
`*` 3/5 = $16,800

Katy = $28,000
`*` 2/5 = $11,200

Therefore,

Jacob's balance = $140,000 - $16,800 = $123,200

Katy's Balance = $40,000 - $11,200 = $28,800