Question

Clarence and Clay are partners who share income in the ratio of 2:3 and have capital balances of $50,000 and $30,000, respectively. Miguel is admitted to the partnership and is given a 40% interest by investing $30,000. What is Clarence's capital balance after Miguel is admitted

Answer 1

Answer: $44,400

Explanation: step by step explanation.

1. Change in old partner's account is done by calculating the total of the old partners' balances plus the amount contributed by the new partner. That is

$50,000 + $30,000 + $30,000 = $110,000).

2. Multiplied the total by the percent given to the new partner. That is $110,000 × .40 = $44,000.

Compared amount paid by the new partner. That is

$44,000 - $30,000 = $14,000

4. If the amount paid is less than the new calculated partner percent, the difference is allocated to old partner accounts based on the old profit-sharing ratio. That is

$14,000 × 2/5 = $5,600

5. Take the old partners' capital balance and subtract the calculated change. That is

$50,000 - $5,600 = $44,400