Question

Norton invested $20,000 in the partnership of Maxwell and Slade. The capital balance of Maxwell and Slade were $40,000 and $60,000, respectively. Income and loss is shared according to the ratio of equity balances. Norton was to receive 25% interest in the new partnership. Prepare journal entry to record this transaction

Answer 1

Working Notes:1
	Calculation of Bonus to new partner or old Partner
	New Equity Balance is:
	Maxwell	$                 40,000
	Slade	$                 60,000
	Norton	$                 20,000
	Total	$              1,20,000
	Nortan's interest =	25%
	Nortan's interest in $ = $ 120,000 X 25% =	$                 30,000
	Less: Nortan Invested	$                 20,000
	Bonus to incoming partner Nortan =	$                 10,000
Working Notes:2
	Ratio of Maxwell and Slade = $40,000 : $ 60,000 = 40% & 60%
	Calculation of Bonus debited to Maxwell and Slade in there old ratio
	Bonus to incoming partner =	$                 10,000
	Maxwell ($ 10,000 X 40%)	$                    4,000
	Slade ($ 10,000 X 60%)	$                    6,000
Solution:
Journal Entries
Transaction	Account Title and explanation	Debit	Credit
1	Cash	$                 20,000
	Maxwell's Capital Account	$                    4,000
	Slade's Capital Account	$                    6,000
	Norton's Capital Account		$               30,000
	(To Record the admission of new parntership)