In the JK partnership, Jacob's capital is $140,000, and Katy's is $40,000. They share income in a 3:2 ratio, respectively. They decide to admit Erin to the partnership. Each of the following questions is independent of the others.

Refer to the information provided above. Erin invests $50,000 for a one-fifth interest in the total capital of $230,000. The journal entry to record Erin's admission into the partnership would include
A. a debit to Jacob, Capital for $2,400.
B. a credit to Erin, Capital for $50,000.
C. a credit to Katy, Capital for $1,600.
D. a credit to Cash for $50,000.

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stokholm stokholm · Answer 1 · 2019-09-16T10:42:57+02:00

Answer:

C. a credit to Katy, Capital for $1,600.

Explanation:

In the given instance, it is provided that Erin is admitted for 1/5th share, for which he brings $50,000

Now, for a total of $230,000 share

1/5 = $230,000 [tex]\times[/tex] 1/5 = $46,000

Since Erin brings $50,000, that means there is goodwill worth $50,000 - $46,000 = $4,000

Now, as Erin brings cash of $50,000, cash will be debited by same.

For recording goodwill, Both old partners account will be credited.

$4,000 [tex]\times[/tex] 3/5 = $2,400 for Jacob

$4,000 [tex]\times[/tex] 2/5 = $1,600 for Katy.

Therefore, as old partner's account have to be credited, correct entry is

Katy's Capital account for $1,600.