Ngozi and Musa with a capital of #30,000 each decide to admit Mary into the partnership business with a capital of #20,000 and goodwill #15,000. If the profits and losses are to be shared equally, the journal entries to record goodwill are
A. debit goodwill #15,000, cash #20,000 and credit Mary’s capital #35,000
B. credit goodwill #15,000, cash #20,000 and debit Mary’s #35,000
C. debit goodwill #15,000, credit cash #20,000 and credit Mary’s capital #20,000
D. debit old partners capital #15,000, credit cash #20,000 and Mary’s capital #35,000
Correct Answer:
Option A – debit goodwill #15,000, cash #20,000 and credit Mary’s capital #35,000
Explanation
Mary’s capital contributed will be 15000 + 20000 = 35000 and will reflect a credit balance because money has gone out of Mary’s purse
Goodwill will have a debit balance and moved to the balance sheet
