Question

In the JK partnership, Jacob's capital is $140,000, and Katy's is $40,000. They share income in a 3:2 ratio, respectively. They decide to admit Erin to the partnership. Each of the following questions is independent of the others.
Refer to the information provided above. Jacob and Katy agree that some of the inventory is obsolete. The inventory account is decreased before Erin is admitted. Erin invests $38,000 for a one-fifth interest. What is the amount of inventory written down?
A. $10,000
B. $20,000
C. $28,000
D. $36,000

Answer 1

Answer:

Option C

$28,000

Explanation:

As for the information provided,

We have,

New partner to be admitted is Erin and his share will be 1/5th

For this he brings in $38,000.

Therefore, total capital will be = $38,000 \times 5 = 190,000$

But actual capital after his addition = $140,000 + $40,000 + $38,000 = $218,0000

Therefore, value of inventory written off as will reduce assets, and capital also = $218,000 - $190,000 = $28,000.

This will ultimately make the contribution of Erin equivalent to his share.