Question

Kurk invests $60,000 for a one-third interest in a partnership in which two other partners, Steve and Paul had capitals of $40,000 and $20,000, sharing profits and losses equally before admitting Kirke What will be the capital account balances of Steve and Paul after admission of Krk?

a.S-530,000 and P- 530,000 respecively
b.S-$50,000 and P: $30,000 respectively
c.S10,000 and $10,000 respectively
d.S-540,000 and P-520,000 respectively

Answer 1

After Kirk's investment of $60,000 for a one-third interest in the partnership, the total capital becomes $120,000. Consequently, both Steve and Paul will have their capital account balances adjusted to $40,000 each, reflecting their one-third share in the partnership.

Step-by-step explanation:

Kirk invested $60,000 for a one-third interest in a partnership. Prior to Kirk's admission, Steve and Paul had capital accounts of $40,000 and $20,000 respectively and shared profits and losses equally. To find the capital account balances of Steve and Paul after Kirk's admission, we need to first determine the total capital of the partnership after Kirk's investment and then calculate one-third of that total for each partner since they will now share equally.

The total capital before Kirk's investment was $40,000 + $20,000 = $60,000. Kirk invests another $60,000, bringing the total to $120,000. Since each partner now has an equal one-third interest, each partner's capital account will be one-third of the total capital. Therefore, one-third of $120,000 is $40,000.

After admitting Kirk, the capital account balances of Steve and Paul will both be $40,000.