Question

Partners Tom and Jerry are very anxious to persuade Mr. Conrad to join their partnership. They currently have 60,000 each in capital accounts. They are willing to admit Conrad as a partner with a one-third interest for only 30,000. After Conrad is admitted, the capital balance for each of the three partners would be ______?

1) 10,000
2) 50,000
3) 60,000
4) 150,000

Answer 1

When Conrad joins Tom and Jerry's partnership by contributing $30,000 for a one-third interest, the total capital becomes $120,000. Each of the three partners would then have a capital balance of $40,000.

Step-by-step explanation:

When Conrad is admitted to the partnership with Tom and Jerry for a $30,000 capital contribution and a one-third interest, we first need to determine the total valuation of the partnership. As Tom and Jerry each have $60,000 and want to give Conrad a one-third interest for $30,000, this suggests that the total value is $90,000 before Conrad's contribution (since two-thirds is $60,000, thus one-third should be $30,000).

Once Conrad contributes $30,000, the total capital of the partnership becomes $120,000 ($60,000 from Tom, $60,000 from Jerry, and $30,000 from Conrad). As each partner has an equal one-third interest in the partnership post Conrad's contribution, we divide the total capital by three to find the capital balance for each partner.

Therefore, the capital balance for each of the three partners would be $40,000 after Conrad is admitted.