Question

donald and hanes shared net income and losses in the ratio of 3:2, respectively. the partners agreed to admit may to the partnership with a 35% interest in partnership capital and net income. may invested $100,000 cash, and no goodwill was recognized. what is the balance of hanes's capital account after the new partnership is created? a. $84,000. b. $100,000. c. $140,000. d. $176,000

Answer 1

The balance of Hanes's capital account after the new partnership is created is $5,000.

Step-by-step explanation:

To find the balance of Hanes's capital account after the admission of May, we need to calculate the new ratio of profit sharing. Currently, Donald and Hanes share net income and losses in the ratio of 3:2, respectively. With the admission of May, the new ratio becomes 3:2:35. This means that Hanes's share in profit will be 2/(3+2+35) times the total net income.

Hanes's capital account balance after the new partnership is created can be calculated as the sum of his initial capital and his share of net income. However, since no goodwill was recognized, we only need to consider his initial capital investment.

Given that May invested $100,000 cash and has a 35% interest in partnership capital and net income, we can calculate Hanes's capital balance as follows:

1. Hanes's initial capital investment = 2/(3+2+35) * May's investment = 2/40 * $100,000 = $5,000

Therefore, the balance of Hanes's capital account after the new partnership is created is $5,000.