Question

In the AD partnership, Allen's capital is $140,000 and Daniel's is $40,000 and they share income in a 3:1 ratio, respectively. They decide to admit David to the partnership. Each of the following questions is independent of the others.
Refer to the information provided above. David invests $40,000 for a one-fifth interest in the total capital of $220,000. The journal to record David's admission into the partnership will include:
A. a credit to Cash for $40,000.
B. a debit to Allen, Capital for $3,000.
C. a credit to David, Capital for $40,000.
D. a credit to Daniel, Capital for $1,000.

Answer 1

Answer:

B. a debit to Allen, Capital for $3,000.

Explanation:

Capital after admission: 220,000

Daniel receives a fifth so 20%: 20% of 220,000  = 44,000

Daniel investment 40,000

So there is a 4,000 bonus that will be taken between the old partners at their share ratio:

Allen 4,000 x 3/4  = 3,000

Daniel 4,000 x 1/4 = 1,000

The journal entry wil lbe:

cash 40,000

allen 3,000

daniel 1,000

       davin         44,000