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. Erin directly purchases a one-fifth interest by paying Jacob $33,000 and Katy $9,000. The land account is increased for its implied increase in value before Erin is admitted. By what amount is the land account increased?
A. $20,000
B. $24,000
C. $30,000
D. $36,000

Answer 1

C. $ 30,000

Step-by-step explanation:

The total amount Erin paid = $ 33000 + $ 9000

= $ 42000

for a one-fifth stake in the partnership, the capital increases to:

5* 42000 = $ 210000

the land account increased by = final capital - initial capital

= $ 210000 - ($ 140000 + $ 40000)

= $ 30000

Therefore, the land account increased by $ 30000.