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Wallace, Simpson, and Prince are partners and share income and losses in a 3:4:3 ratio. The partnership's capital balances are Wallace, $68,000; Simpson, $90,000; and Prince, $42,000. Royal is admitted to the partnership on July 1 with a 20% equity and invests $50,000. The partnership would record the admission of Royal into the partnership as:
a. Debit Wallace, Capital $15,000; debit Simpson, Capital, $20,000; debit Prince, Capital $15,000; credit Royal, Capital $50,000.
b. Debit Cash $20,000; credit Prince, Capital $20,000.
c. Debit Cash $40,000; debit Wallace, Capital $3,000; debit Simpson, Capital, $4,000; debit Prince, Capital $3,000; credit Royal, Capital $50,000.
d. Debit Cash $50,000; credit Royal, Capital $50,000.
e. Debit Cash $50,000; credit Simpson, Capital $10,000, credit Royal, Capital $40,000.

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Answer:

d. Debit Cash $50,000; Credit Royal, Capital $50,000

Explanation:

Date     Description                Debit        Credit

             Cash                        $50,000

                  Capital                                    $50,000

Workings

Total capital after admission of Royal = $68,000 + $90,000 + $42,000 + $50,000 = $200,000

Royal’s capital contribution for 20% equity = 20% x $200,000 = $50,000

Since Royal’s contribution is equal to 20% of the total equity, there is no bonus.

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