They agreed to admit Ramelow into the business for a one-third interest in the new partnership. Ramelow contributes $22,000 cash in exchange for the partnership interest. Assume that Floyd and Merriam shared profits and losses equally 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 $59,000
Contribution of new partner 22,000
Capital after admission 81,000
Capital of new partner ($81,000 × 1 / 3) 27,000
Bonus to new partner ($27,000 - $22,000) $5000*
*(to be borne equally by Floyd and Merriam)
A new partner may be so valuable that the existing partners offer a partnership share that includes a
bonus to the new partner. The bonus of $5000 went to Ramelow from the other partners, so their capital
accounts are debited for the bonus. The existing partners (Floyd and Merriam) share this decrease in
capital as though it were a loss, on the basis of their profit-and-loss sharing ratio.
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