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 provide above. Erin invests $50,000 for a one-fifth interest in the total capital of $230,000. What are the capital balances of Jacob and Katy after Erin is admitted into the partnership?
Jacob Katy
A. $142,400 $41,600
B. $142,000 $42,000
C. $140,000 $40,000
D. $137,600 $38,400

Answer 1

D. $137,600 $38,400

Step-by-step explanation:

As for the provided information, we have,

Total capital = $230,000

1/5th of this capital = $230,000/5 = $46,000

therefore, goodwill not recorded = $50,000 - $46,000 = $4,000

For this capital of Jacob and Katy will be debited.

Jacob = $4,000
`*` 3/5 = $2,400

Kathy = $4,000
`*` 2/5 = $1,600

Therefore, capital balances of Jacob and Kathy shall be:

Jacob = $140,000 - $2,400 = $137,600

Kathy = $40,000 - $1,600 = $38,400