Question

"Reed, Sharp, and Tucker were partners with capital account balances of $80,000, $100,000, and $70,000, respectively. They agreed to admit Upton to the partnership. Upton purchased 30% of each partner's interest, with payments directly to Reed, Sharp, and Tucker of $32,000, $40,000, and $28,000, respectively. Before the admission of Upton, the profit and loss sharing ratio was 2:3:2. The partners agreed to use the book value method to account for the admission of Upton to the partnership."

Answer 1

Answer: Upton capital balance = $75,000

Explanation:

Initial partner capital = $80,000 + $100,000 + $70,000 = $250,000

New Partner Investment = $32,000 + $40,000 + $28,000 = $100,000

Using book value method

Reed new capital balance = original capital - 30% Sold

= $80,000 - 0.3 * $80,000

= $80,000 - $24000

= $56,000

Sharp new capital balance = original capital - 30% Sold

= $100,000 - 0.3 * $100,000

= $100,000 - $30,000

= $70,000

Tucker new capital balance = original capital - 30% Sold

= $70,000 - 0.3 * $70,000

= $70,000 - $21,000

= $49,000

Upton capital balance = $21,000 + $24,000 + $30,000

= $75,000