Final answer:
In a partnership, when one partner buys out another partner's interest, the entry to record the transfer simply involves debiting the outgoing partner's capital account and crediting the incoming partner's capital account with the amount of existing equity. Any additional amount paid does not affect the partnership's books as it's a personal transaction between the partners.
Step-by-step explanation:
The student's question pertains to a transaction in a partnership where one partner, Ballado, is purchasing another partner, Lagrimas', equity interest in a firm. When Ballado purchases Lagrimas' equity interest for $20,000, while Lagrimas has a capital account with a credit balance of $15,000, we need to make the following entries.
Firstly, since Ballado is buying the interest from Lagrimas directly, the partnership books would reflect a reduction in Lagrimas' capital account and an introduction of Ballado's capital account. This is an internal transfer among partners and does not affect the overall capital of the firm. The journal entry on the partnership's books would be:
- Debit Lagrimas' Capital Account: $15,000
- Credit Ballado's Capital Account: $15,000
This entry reflects Ballado assuming Lagrimas' existing capital in the firm. If there is an additional amount paid by Ballado over the credit balance of Lagrimas' capital account, it will not be recorded in the partnership's books, as this is an exchange between the two individuals. However, Ballado might have a separate entry in their personal records for the additional amount paid. Consequently, Ballado's capital account would start with a balance of $15,000 in the partnership books.