Immediately prior to the admission of Abbott, the Smith-Jones Partnership assets had been adjusted to current market prices and the capital balances of Smith and Jones were $40,000 and $60,000, respectively. If the parties agree that the business is worth $120,000, what is the amount of bonus that should be recognized in the accounts at the admission of Abbott?

A) $60,000
B) $80,000
C) $40,000
D) $20,000

Question

Zybrea Knight · Accepted Answer

Final Answer : D, Explanation :  The bonus is the difference between the agreed value of the business ($120,000) and the sum of the existing capital balances of Smith and Jones ($40,000 + $60,000 = $100,000). Therefore, the bonus amount is $120,000 - $100,000 = $20,000.

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