08.07.2022 - 12:05

# Partners Q, X, and Y share net income and losses in a 5:3:2 ratio respectively. The capital account balances on April 30, Year 5 are as follows: The assets and liabilities of the partnership are recor

Question:

Partners Q, X, and Y share net income and losses in a 5:3:2 ratio respectively. The capital account balances on April 30, Year 5 are as follows:

 W Capital $37,000 X Capital$65,000 Y Capital $48,000 Total partners’ capital$150,000

The assets and liabilities of the partnership are recorded at their fair values. Z is to be admitted to the partnership with a 20% capital interest and a 20% share of net income and losses in exchange for a cash investment. No goodwill or bonus is to be recorded. The amount that the Partner Z should invest in the partnership is:

a) $37,500 b)$40,000

c) $30,000 d)$36,000

The correct answer is c) $30,000. To find the amount that Partner Z should invest in the partnership, we need to first calculate the total capital of the partnership after Z is admitted. Since Z is to have a 20% capital interest, the total capital after admission will be$180,000 ($150,000 * 1.2). Next, we need to determine what portion of the$180,000 capital belongs to each partner. Q, X, and Y share net income and losses in a 5:3:2 ratio, respectively. Therefore, their capital interests are also in a 5:3:2 ratio. Q's capital interest = 5/10 * $180,000 =$90,000 X's capital interest = 3/10 * $180,000 =$54,000 Y's capital interest = 2/10 * $180,000 =$36,000 Z's capital interest = 20% * $180,000 =$36,000 Finally, we can calculate the amount that Partner Z should invest by subtracting Z's initial capital interest of $0 from Z's final capital interest of$36,000. Therefore, the amount that Partner Z should invest is $36,000 -$6,000 = \$30,000.