Question 1

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?

Accepted Answer

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.

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Allocating bonus in wrong direction.

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?

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