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. Assume that David invests $50,000 for a one-fourth interest. Goodwill is to be recorded. The journal to record David's admission into the partnership will include:
A. a credit to cash for $50,000.
B. a debit to goodwill for $7,500.
C. a credit to David, Capital for $60,000.
D. a credit to David, Capital for $50,000.

Answer 1

Answer:

C. a credit to David, Capital for $60,000.

Explanation:

140,000 + 40,000 + 50,000 = 230,000

After the capital Allen and Daniel own 75% of the partnership:

180,000 = 75%

We can calculate for the 100% of the partnership

100% = 240,000 partnership after

David receive 25% =       60,000

but his contribution is for 50,000

goodwill of                        10,000

journal entry

Cash     50,000

goodwill 10,000

David Capital     60,000