Question

Benson and Orton are partners who share income in the ratio of 2:3 and have capital balances of $60,000 and $40,000, respectively. Ramsey is admitted to the partnership and is given a 10% interest by investing $20,000. What is Orton's capital balance after admitting Ramsey?

Answer 1

Answer:

$44,800

Explanation:

For computation of capital balance we need to find out first total capital, shares, gain and Orton shares which is shown below:-

Total capital = $60,000 + $40,000 + $20,000

= $120,000

Shares = Total capital × Interest rate

= $120,000 × 0.10

= 12,000

Gain = Investment - Shares

= $20,000 - $12,000

= $8,000

Orton Shares = Gain × 3 ÷ 5

= $8,000 × 3 ÷ 5

= $4,800

Capital = Given capital balance + Orton Shares

= $40,000 + $4.800

= $44,800

So, We have applied the above formula.