Question

d. E contributes $82,000 in cash to the business to receive a 22 percent interest in the partnership. No goodwill or other asset revaluation is to be recorded. Profits and losses have previously been split according to the following percentages: A, 10 percent; B, 30 percent; C, 20 percent; and D, 40 percent. After E makes this investment, what are the individual capital balances

Answer 1

After E makes this investment, the individual capital balances are:

A = $29,073

B = $87,218

C = $58,145

D = $116,291

E = $82,000

Total = $327,727

Step-by-step explanation:

a) Data and Calculations:

E's capital contribution = $82,000 for 22%

Total capital after E's admission = $372,727 ($82,000/22%)

Old profits and losses sharing ratio:

A, 10 percent; B, 30 percent; C, 20 percent; and D, 40

New profits and losses sharing ratio and new capital balances

A = 10% of 78% = 7.8% 7.8% of $372,727 = $29,073

B = 30% of 78% = 23.4% 23.4% of $372,727 = $87,218

C = 20% of 78% = 15.6% 15.6% of $372,727 = $58,145

D = 40% of 78% = 31.2% 31.2% of $372,727 = $116,291

E = 22% 22% of $372,727 = $82,000

Total = 100% $327,727

b) The capital of the partnership will total $327,727 while individual partnerships will have their capital accounts adjusted in line with the new profit sharing ratio and capital.