Accounting Online Program Certification Practice Test

What percentage of profit does Paula's son Ryan receive in partnership after being admitted?

1. 30%

2. 25%

3. 20%

4. 50%

The correct answer is: 20%

In a partnership, when a new partner is admitted, the profit-sharing ratio is usually determined by the agreement among the existing partners and the incoming partner. Each partner’s share of the profits can be influenced by various factors, including the contributions made by each partner, the amount of capital invested, and any prior arrangements or agreements in place. In this case, if the correct answer is 20%, it indicates that after Ryan’s admission into the partnership, he has been allocated a fixed share of profits that reflects either the capital he invested or the agreement made among the partners. It's essential to understand that this percentage might represent an equitable distribution based on the partnership's total profits, taking into consideration the roles and contributions of the existing partners. Therefore, 20% signifies an arrangement that considers Ryan’s contributions to the partnership while ensuring that the existing partners retain their respective shares of profit, thus maintaining a balance in their overall profit-sharing scheme. This type of arrangement is not uncommon in partnerships, especially when new partners come on board at different stages of the business.