The partners of Arch, Bell & Cole LLP had the following capital account balances and income-sharing ratio on May 31, 2005 (there were no loans receivable from or payable to partners):

The partners are considering admission of Sidney Dale to the new Arch, Bell, Cole & Dale LLP for a 25% interest in partnership capital and a 20% share of net income. They request your advice on the preferability of Dale’s investing cash in the partnership compared with their selling to Dale one-fourth of each of their partnership interests.
Instructions Present the partners of Arch, Bell & Cole LLP with the advantages and disadvantages of the two possible methods of the admission of Dale. Disregard income tax considerations.

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Partner Arch Capital Account Balance Income-Sharing Ratio Bell Cole $120,000 210,000 90,000 35% 25 40 Totals $420,000 100%