Wright, Smith, and Young are partners with present capital balances of $60,000, $35,000, and $30,000, respectively. The partners share profits and losses according to the following percentages: 40% for Wright, 30% for Smith, and 30% for Young. Locke is to join the partnership upon contributing $40,000 to the partnership in exchange for a 20% interest in capital and a 20% interest in profits and losses. The existing assets of the original partnership are undervalued by $20,000. The original partners will share the balance of profits and losses in proportion to their original percentages.

Required:

Calculate the capital balances for each individual in the new partnership, assuming use of the bonus and goodwill methods.

Answer rating: 100% (QA)

ANS Bonus method Original capital balance Investment ... View the full answer