The capital balances of Able,Bligh,and Coulter,who share income in the ratio of 2:2:1,are as follows: Able $240,000,Bligh $120,000,and Coulter $40,000.Jeshua invests $200,000 cash in the partnership for a 20% interest.How would the partnership record the admission of Jeshua?
A)Debit Cash for $200,000,credit Able,Capital for $32,000,credit Bligh,Capital for $32,000,credit Coulter,Capital for $16,000,and credit Jeshua,Capital for $120,000.
B)Debit Cash for $80,000 and credit Jeshua,Capital for $80,000.
C)Debit Jeshua,Capital for $80,000 and credit Cash for $80,000.
D)Debit Jeshua,Capital for $200,000 and credit Cash for $200,000.
E)Debit Cash for $200,000 and credit Jeshua,Capital for $200,000.

Question

Quizplus · Accepted Answer

The admission of Jeshua will result in a change in the capital balances of Able, Bligh, and Coulter, as well as the addition of a new capital account for Jeshua.

First, we need to calculate the total capital balance before the admission of Jeshua:
Able's capital: 2/5 x $400,000 = $160,000
Bligh's capital: 2/5 x $400,000 = $160,000
Coulter's capital: 1/5 x $400,000 = $80,000
Total capital: $400,000

Next, we need to calculate Jeshua's share of the partnership:
Jeshua's investment: $200,000
Jeshua's share: 20%
Jeshua's share of total capital: 20% x $400,000 = $80,000

To record Jeshua's admission, we will debit cash for the amount of his investment and credit each partner's capital account based on their profit-sharing ratio. Jeshua's capital account will also be credited for his share of the total capital before his admission.

The journal entry will be:
Debit Cash $200,000
Credit Able, Capital $32,000
Credit Bligh, Capital $32,000
Credit Coulter, Capital $16,000
Credit Jeshua, Capital $120,000 (his share of total capital before admission)

The Capital Balances of Able,Bligh,and Coulter,who Share Income in the Ratio