A summary balance sheet for the McCune, Nall, and Oakley partnership appears below. McCune, Nall, and Oakley share profits and losses in a ratio of 2:3:5, respectively.

 

The partners agree to admit Pavic for a one-fifth interest. The fair market value of partnership land is appraised at $100,000 and the fair market value of inventory is $87,500. The assets are to be revalued prior to the admission of Pavic and there is $15,000 of goodwill that attaches to the old partnership.

Required:

I. By how much will the capital accounts of McCune, Nall, and Oakley increase, respectively, due to the revaluation of the assets and the recognition of goodwill?

a. The capital accounts will increase by $25,000 each.

b. $18,000, $27,000, and $45,000.

c. The capital accounts will increase by $30,000 each.

d. $20,000, $25,000, and $30,000.

II. How much cash must Pavic invest to acquire a one-fifth interest?

a. $150,625.

b. $146,875.

c. $117,500.

d. $120,500.

III. What will the profit and loss sharing ratios be after Pavic’s investment?

a. 4:6:10:5

b. 1:2:4:2

c. 2:3:5:2

d. 3:4:6:2

Assets Cash Inventory Marketable securities Land Building-net Total assets Equities McCune, capital Nall, capital Oakely, capital Total equities er es es 50,000 62,500 100,000 50,000 250,000 512,500 212,500 200,000 100,000 512,500