Caitlin, Chris, and Molly are partners and share income and losses in a 3:4:3 ratio. The partnership’s capital balances are Caitlin, $120,000; Chris, $80,000; and Molly, $100,000. Paul is admitted to the partnership on July 1 with a 20% equity and invests $160,000. The balance in Paul’s capital account immediately after his admission is:

(A) $140,400

(B) $99,600

(C) $107,200

(D) $160,000

(E) $120,400

Balance in Paul’s capital account immediately after his admission is:  

(A) $140,400

Explanation:

Total capital after admission of Paul = $120000 + $80000 + $100000 + $160000 = $460000

Paul’s share = 20% x $460000 = $92000

Excess amount contributed by Paul $160000 - $92000 = $68000 will be shared by existing partners in the income and losses ratio of 3:4:3

Caitlin’s share = 3/10 x $68000 = $20400

Balance in Caitlin’s capital account immediately after Paul’s admission = $120000 + $20400 = $140,400.

answer(d) encourage cooperation by improving the chances of mutually agreeable transactions;