Hewlett and Martin are partners. Hewlett's capital balance in the partnership is $64,000, and Martin's capital balance $61,000. Hewlett and Martin have agreed to share equally in income or loss. Hewlett and Martin agree to accept Black with a 25% interest. Black will invest $35,000 in the partnership. The bonus that is granted to Black equals:
A) $5,000.
B) $2,500.
C) $6,667.
D) $3,333.
E) $0, because Black must actually grant a bonus to Hewlett and Martin.
A) $5,000.
Explanation: Total Partnership Equity = Hewlett's Capital + Martin's Capital + Black's Investment
Total Partnership Equity = $64,000 + $61,000 + $35,000 = $160,000
Equity for Black = $160,000 * 0.25 (or 25%) = $40,000
Bonus to Black = Black's Capital (Equity) - Cash Investment
Bonus to Black = $40,000 - $35,000 = $5,000
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