may cheng and Hannah Webster are partner who share in the income equally and have capital balance of 207000 and 62500 respectively. cheng with the consent of Webster sells one third of her interest to Michael cross. what entry is required by the partnership if the saler price is (a)60000?(b)80000
(a) If the sales price is $60,000:
The new capital balance for May Cheng would be:
$207,000 / 3 = $69,000 (1/3 of her capital balance)
May Cheng's capital balance after selling a portion to Michael Cross would be:
$69,000 - $20,000 (1/3 of the sales price) = $49,000
The new capital balance for Hannah Webster would be the same as before the sale:
$62,500
The entry required by the partnership would be:
May Cheng's Capital account:
Dr. $20,000 (1/3 of the sales price)
Michael Cross's Capital account:
Dr. $20,000 (1/3 of the sales price)
Hannah Webster's Capital account:
No entry required
Cash account (for the sales proceeds):
Cr. $60,000
(b) If the sales price is $80,000:
The new capital balance for May Cheng would be:
$207,000 / 3 = $69,000 (1/3 of her capital balance)
May Cheng's capital balance after selling a portion to Michael Cross would be:
$69,000 - $26,667 (1/3 of the sales price) = $42,333
The new capital balance for Hannah Webster would be the same as before the sale:
$62,500
The entry required by the partnership would be:
May Cheng's Capital account:
Dr. $26,667 (1/3 of the sales price)
Michael Cross's Capital account:
Dr. $26,667 (1/3 of the sales price)
Hannah Webster's Capital account:
No entry required
Cash account (for the sales proceeds):
Cr. $80,000