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7 January, 15:01

J. Arthur has a capital balance of $80,000 and E. Joseph has a capital balance of $100,000 in their partnership as of June 30. On July 1, the two partners agree to accept M. Alice as a partner in exchange for an investment of $20,000. Prepare the July 1 journal entry for the partnership.

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  1. 7 January, 17:51
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    Debit Cash $20,000

    Credit M. Alice capital $20,000

    Explanation:

    We recognize the admission of new partner by debiting the cash that the partnership received in the amount of $20,000 and then record the interest of the new partner by crediting her capital, M. Alice, capital $20,000. Basically, the old partners will agree as to what amount of interest that the new partner will be credited to the partnership. But in this scenario, the problem is silent as to the agreement of interest that M. Alice will be credited, in effect, the books will recognize M. Alice' interest equal to the cash she invested to the partnership.
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