Question

Wallace and Simpson formed a partnership with Wallace contributing $92,000 and Simpson contributing $72,000. Their partnership agreement calls for the income (loss) division to be based on the ratio of capital investments. Wallace sold one-half of his partnership interest to Prince for $63,000 when his capital balance was $84,000. The partnership would record the admission of Prince into the partnership as:

Answer 1

Given that,

Wallace contributing = $92,000

Simpson contributing = $72,000

Wallace capital balance = $84,000

Wallace sold one-half of his partnership interest to Prince for $63,000,

Now, 50% of the share is transferred to the prince:

= 50% of Capital balance of Wallace (at that time)

= 50% × $84,000

= $42,000

Therefore, the journal entry is as follows:

Wallace capital A/c Dr. $42,000

To Prince capital $42,000

(To record the transfer of share)