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Selling the rights to use your company's brand name in return for a lump-sum payment and a share of the profits generated is ref
1 answer:
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Answer: Option (B) is correct.
Explanation:
Capital contribution by David = $40,000
Interest of David in partnership =
Total capital of the partnership after the admission of new partner:
=
= $200,000
Total capital of partnership before decreasing of obsolete inventory:
= $140,000 + $40,000 + $40,000
= $220,000
Therefore, value of decrease in inventory:
= Total capital before decrease - Total capital after decrease
= $220,000 - $200,000
= $20,000
The reduction in value of inventory will be distributed in old partners in ratio of 3:1
Hence,
Capital balance of Allen after admission of David:
=
= $125,000
Capital balance of Daniel after admission of David:
=
= $35,000