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?

Floyd and Merriam start a partnership business on June 12, 2019. Their capital account balances as of December 31, 2020 stood as follows:











Explanation: Existing capital $73,000

Contribution of new partner 27,000

Capital after admission 100,000

Capital of new partner ($100,000 × 1 / 5) 20,000

Bonus to existing partners ($27,000 - $20,000) $7000

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.

Business

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