Question

Bobbi and Stuart are partners. The partnership capital of Bobbi is $35,300 and that of Stuart is $77,700. Bobbi sells his interest in the partnership to John for $55,900. The journal entry to record the admission of John as a new partner would include a credit to a.Stuart's capital account for $56,500 b.John's capital account for $35,300 c.John's capital account for $55,900 d.John's capital account for $35,300 and a credit to Stuart's capital account for $77,700

Answer 1

Answer:

The correct answer is:

John's capital account for $35,300 (c.)

Explanation:

In the admission of a new partner, the purchase of ownership from an existing partner to a new partner is entirely a personal transaction between the existing partner and the new partner, and the extent of partner bonus (the interest sold on the original partnership amount) is acquired by the exiting partner, but this bonus is not reflected in the partnership agreement, hence the amount credited into the new partner's account is the same as that owned previously by the exiting partner, irrespective of how much the partnership ownership was sold for.

Hence, since Bobbi's partnership capital was $35,300, John's account would be credited with the same amount even if the ownership was sold for $55,900, as the bonus goes to Bobbi.