Floyd and Merriam start a partnership business on June 12,2019.Their capital account balances as of December 31,2020 stood as follows: They agreed to admit Ramelow into the business for a one-fifth interest in the new partnership.Ramelow contributes $27,000 cash in exchange for the partnership interest.Assume that Floyd and Merriam shared profits and losses in a 3:1 ratio before the admission of Ramelow.Which of the following is the correct journal entry to record the above admission?

Question

Floyd and Merriam start a partnership business on June 12,2019.Their capital account balances as of December 31,2020 stood as follows:  They agreed to admit Ramelow into the business for a one-fifth interest in the new partnership.Ramelow contributes $27,000 cash in exchange for the partnership interest.Assume that Floyd and Merriam shared profits and losses in a 3:1 ratio before the admission of Ramelow.Which of the following is the correct journal entry to record the above admission?

Quizplus · Accepted Answer

11ea8a75_430c_a478_a2a1_d1bccdf3ea2b_TB6701_00 Ramelow had to buy into the partnership at a contribution of $27,000,which is above the $20,000 book value of his one-fifth interest.Ramelow's higher-than-book-value contribution creates a bonus for Floyd and Merriam,which is shared between them in their profit sharing ratio,which is 3:1.

Floyd and Merriam Start a Partnership Business on June 12,2019