Question

Abby and Bailey are partners who share income in the ratio of 2:1 and have capital balances of $60,000 and $30,000, respectively. With the consent of Bailey, Sandra buys one-half of Abby's interest for $35,000. For what amount will Abby's capital account be debited to record admission of Sandra to the partnership?

Answer 1

Answer:$30,000

Explanation:

The total value of Abby capital is $60,000 a sales of one half means $30,000 which will be debited to his capital account and credited to Sandra capital account as her share in the partnership, however the balance of $5000 will be credited to Abby share of profit account as gain on sale of share of capital. Crediting the whole sum to his capital account will reduce his stake in the partnership and put the old partners at a disadvantage in future share of profit.

The $5000 further represents a reward for the value he has added to the partnership called goodwill.