Laura’s investment in a new partnership includes $1,000 in cash and $5,000 of equipment. The new partnership is assuming $500 of Laura’s accounts payable. The partnership entry should be which of the following?
A. Debit Laura’s Capital $5,500; debit Accounts Payable $500; credit Cash $1,000; credit Equipment $5,000
B. Debit Cash $1,000; debit Equipment $5,000; credit Laura’s Capital $6,000
C. Debit Cash $1,000; debit Equipment $5,000; credit Accounts Payable $500; credit Laura’s Capital $5,500
D. Debit Laura’s Investment $5,500; credit Capital $5,500
Very Confused Please help
To determine the correct entry for the new partnership, we need to understand the impact of Laura's investment.
1. Laura is investing $1,000 in cash. This increases the partnership's cash balance.
2. Laura is also contributing $5,000 worth of equipment. This increases the partnership's equipment balance.
3. The partnership is assuming $500 of Laura's accounts payable. This means the partnership will take responsibility for paying off these debts.
Based on this information, the correct entry for the new partnership would be:
C. Debit Cash $1,000; debit Equipment $5,000; credit Accounts Payable $500; credit Laura’s Capital $5,500
This entry correctly reflects the increase in cash and equipment due to Laura's investment, as well as the assumption of her accounts payable. It also shows the corresponding increase in Laura's capital, which represents her ownership interest in the partnership.
To determine the correct partnership entry, we need to understand the basic principles of accounting. In this scenario, Laura is contributing both cash and equipment to the partnership, while the partnership is assuming some of Laura's accounts payable.
Here's how we can break down the transaction:
1. Laura is contributing $1,000 in cash. This cash will increase the partnership's assets, so we need to debit (increase) the cash account.
2. Laura is also contributing $5,000 worth of equipment. The equipment is another asset that the partnership will acquire, so we need to debit (increase) the equipment account.
3. The partnership is assuming $500 of Laura's accounts payable. This means the partnership is taking responsibility for payment of Laura's debts. Since this is a liability, we need to credit (increase) the accounts payable account.
4. Finally, Laura's total investment consists of the contributions of cash and equipment, minus the accounts payable assumption. Therefore, we need to credit (increase) Laura's capital account.
Based on this analysis, the correct partnership entry is option C:
Debit Cash $1,000; debit Equipment $5,000; credit Accounts Payable $500; credit Laura's Capital $5,500
If you follow this entry, the total debits ($6,000) will equal the total credits ($6,000), ensuring that the accounting equation remains balanced.