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. Allen and Daniel agree that some of the inventory is obsolete. The inventory account is decreased before David is admitted. David invests $40,000 for a one-fifth interest. What is the amount of inventory written down?
A. $4,000
B. $20,000
C. $15,000
D. $10,000

Answer 1

B. $20,000

Step-by-step explanation:

40,000 = a fifth

so ther parthnership capital should equal to

40,000 / (1/5) = 200,000

But the current sum of the capital without adjustment is:

Capital 140,000 + 40,000 + 40,000 = 220,00

to make it balance, the inventory must has been written down by 20,000

this difference was taken by the prevous partner Allen and Daniel.