Question

D. Shahi and K. Vaughn organize a partnership. Their partnership agreement states that Shahi will receive 40% of the partnership income or loss and Vaughn will receive the remaining 60%. On January 2, the two partners agree to accept Paul Williams as a partner with a 40% interest if Williams invests $80,000 cash. At the time of Williams' admission, the partnership`s accounting records show that Shahi has recorded equity of $80,000 and Vaughn has recorded equity of $90,000. The old partners will contribute to the bonus paid to Williams as follows
$12,000 by Shahi and $8,000 by Vaughn.

$32,000 by Shahi and $48,000 by Vaughn.

$8,000 by Shahi and $12,000 by Vaughn.

$32,000 by Shahi and $63,000 by Vaughn.

Answer 1

Answer:

$8,000 by Shahi and $12,000 by Vaughn.

Explanation:

Given that,

Investment of Shahi = $80,000 with 40% share

Investment of Vaughn = $90,000 with 60% share

Investment of Williams = $80,000 with 40% interest

Total capital after admission of Paul Williams:

= Investment of Williams + Investment of Shahi + Investment of Vaughn

= $80,000 + $80,000 + $90,000

= $250,000

Williams's share in new capital:

= Total capital after admission of Paul Williams × Interest

= $250,000 × 40%

= $100,000

Bonus paid to Williams:

= Williams's share in new capital - Investment of Williams

= $100,000 - $80,000

= $20,000

Therefore, the bonus paid to Williams will be contributed by old partners:

D. Shahi Contributed = $20,000 × 40%

                                      = $8,000

K. Vaughn contributed = $20,000 × 60%

                                      = $12,000