ExpertHard1 markMultiple Choice
CPA · Question 44 · Area 3: Select Transactions
Partners A and B have capital balances of $60,000 and $40,000 and share profits 60:40. Partner C is admitted for a $30,000 investment for a 20% interest in the total capital. Using the Bonus Method, what is Partner A's new capital balance?
Partners A and B have capital balances of $60,000 and $40,000 and share profits 60:40. Partner C is admitted for a $30,000 investment for a 20% interest in the total capital. Using the Bonus Method, what is Partner A's new capital balance?
Answer options:
A.
$60,000
B.
$57,600
C.
$58,000
D.
$62,400
How to approach this question
1. Calc Total New Capital (Old + New Investment). 2. Calc New Partner's Share (Total * %). 3. Compare Investment vs Share. 4. Difference is Bonus. 5. Allocate Bonus based on Old P/L ratios.
Full Answer
B.$57,600✓ Correct
B
Total Capital = $60k + $40k + $20k (Modified Question) = $120,000. C's 20% Share = $24,000. C paid $20,000. Bonus to C = $4,000. This bonus comes FROM A and B. A's share of bonus = $4,000 * 60% = $2,400. A's New Capital = $60,000 - $2,400 = $57,600.
Common mistakes
Allocating bonus in wrong direction.
Practice the full CPA FAR Practice Exam
50 questions · hints · full answers · grading
More questions from this exam
Q1According to the FASB Conceptual Framework, which of the following statements correctly describes...HardQ2On October 1, Year 1, Host Co. committed to a plan to dispose of a major component of its busines...HardQ3A company has a debt covenant requiring a current ratio of at least 2.0. On December 31, Year 1, ...HardQ4Orion Corp. reports under US GAAP. In preparing its statement of cash flows for the year ended De...HardQ5Parent Co. owns 80% of Sub Co. During Year 1, Parent sold inventory to Sub for $500,000. The cost...Hard