Question

In forming a partnership, Allan contributed 60 percent of the net assets, while Brown contributed 40 percent. However, Brown has special expertise in the business undertaken by the partnership. In recognition of this fact, the partnership agreement specifies that Brown is entitled to an additional 10 percent of the net assets of the business. Under the agreement, Allan's capital share is:

A) 40 percent.
B) 50 percent.
C) 60 percent.
D) 70 percent.

Answer 1

The correct option is B. In the partnership formed by Allan and Brown, Allan initially contributed 60 percent and Brown 40 percent. Brown receives an additional 10 percent for his expertise, which adjusts Allan's share to 50 percent.

Step-by-step explanation:

When forming a partnership, the initial contributions to the net assets determine the initial ownership percentages of the partners. Allan contributed 60 percent, while Brown contributed 40 percent. However, as per the partnership agreement, Brown receives an additional 10 percent of recognition for his expertise. This additional percentage is likely subtracted from Allan's initial contribution, as there is no other source mentioned for the adjustment.

If Allan's initial capital is reduced by 10 percent in order to provide Brown with this additional recognition, Allan's new capital share would become:

• Allan's initial share: 60%
• Brown's expertise recognition: 10%
• Allan's adjusted share: 60% - 10% = 50%

Hence, under the partnership agreement, Allan's capital share is 50 percent.