Question

In the AD partnership, Allen's capital is $140,000 and Daniel's is $40,000 and they share income in a 3:1 ratio, respectively. They decide to admit David to the partnership. Each of the following questions is independent of the others.

Refer to the information provided above. What amount will David have to invest to give him one-fifth percent interest in the capital of the partnership if no goodwill or bonus is recorded?
A. $60,000
B. $36,000
C. $50,000
D. $45,000

Answer 1

The correct option is (D)

Step-by-step explanation:

Given:

Allen's capital = $140,000

Daniel's capital = $40,000

Total capital before admitting David = $180,000

David's interest in partnership is 1/5 or 20%. So Allen and Daniel's capital will now be 80%.

Required capital after admitting David =
`(180,000)/(0.8)`

= $225,000

David's investment = 225,000 - 180,000

= $45,000

Therefore, David's investment in partnership is $45,000