Question

Ben White and Lisa Caputi are partners, and each has a capital balance of $68,000. To gain admission to the partnership, Tim Smith pays $48,000 directly to White for one-half of his equity. After the admission of Smith, the total partners' equity in the records of the partnership will be

Answer 1

Sol- Profit Sharing ratio between Ben and Lisa is 1:1

Tim's share in partnership = 1/2 of Ben White's Share i.e 1/2*1/2

Tim's share in partnership= 1/4th share

The cash will be paid directly to Ben White and not to the partnership. This will not change total partnership equity but instead 1/4 of Ben Whites’s capital balance will be transferred to Tim Smith in the following entry:

Particulars	Debit	Credit
Ben White, Capital Tim Smith, Capital	$34000	$34000
To record Admittance of Tim

After the admission of Smith, the total partners' equity in the records of the partnership will be

Ben White -$34000

Lisa Caputi - $68000

Tim Smith - $34000