Lauren and Elizabeth are partners. Lauren has a capital balance of $125,000 and Elizabeth has a capital balance of $110,000. Harry invested $100,000 to acquire an ownership interest of 30%. The journal entry to record the receipt of Harry's contribution will ________.
A) decrease Lauren, Capital
B) increase Elizabeth, Capital
C) decrease Cash
D) decrease Harry, Capital
A) decrease Lauren, Capital
Explanation:
Partnership capital before admission of new partner = $125,000 + $110,000 = $235,000
Contribution of new partner 100,000
Partnership capital after contribution $335,000
New partner's ownership share ($335,000 × 30%) 100,500
Contribution of new partner (100,000)
Bonus to new partner $500
In this case Harry entered the partnership at a price less than the book value of his equity.
The bonus came to Harry from the other partners so their capital accounts are reduced in the amount of
the bonus.
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