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In the AD partnership, Allen's capital is $140,000 and Daniel's is $40,000 and they share income in a 3:1 ratio, respectively. They decide to admit David to the partnership. Each of the following questions is independent of the others.

Refer to the information provided above. David directly purchases a one-fifth interest by paying Allen $34,000 and Daniel $10,000. The land account is increased before David is admitted. By what amount is the land account increased?
A. $40,000
B. $10,000
C. $36,000
D. $20,000

Respuesta :

Answer: Option (A) is correct.

Explanation:

Given that,

Allen's capital is $140,000

Daniel's is $40,000

Income sharing Ratio = 3:1

David paid for a 1/5th stake in the partnership

Allen = $34,000 and Daniel = $10,000

Total amount paid by David = $44,000

Land account is increased before David is admitted

Therefore,

The value of entire entity = 5 × $44,000

                                        = $220,000

Upward valuation on account of land revaluation = $220,000 - $180,000

                                                                                    = $40,000

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