MC Qu. 118 Wallace and Simpson formed a partnership... Wallace and Simpson forme

Question

MC Qu. 118 Wallace and Simpson formed a partnership...

Wallace and Simpson formed a partnership with Wallace contributing $72,000 and Simpson contributing $52,000. Their partnership agreement calls for the income (loss) division to be based on the ratio of capital investments. Wallace sold one-half of his partnership interest to Prince for $58,000 when his capital balance was $81,000. The partnership would record the admission of Prince into the partnership as:

Multiple Choice

Debit Wallace, Capital $58,000; credit Prince, Capital $58,000.

Debit Wallace, Capital $40,500; credit Prince, Capital $40,500.

Debit Prince, Capital $58,000; credit Wallace, Capital $58,000.

Debit Wallace, Capital $36,000; credit Prince, Capital $36,000.

Debit Wallace, Capital $40,500; debit Cash $17,500; credit Prince, Capital $58,000.

Explanation / Answer

Correct entry is Debit Wallace, Capita $40,500 ; Credit Prince, Capital $40,500 Wallace sold half of it's partnership to Prince when his capiatl balance was $81,000 Therefore, amount of wallance capital transferred to Prince capital is = $81,000/2 = $40,500

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