Question: Wallace and Simpson formed a partnership with Wallace contributing $84,000 and Simpson contributing $64,000. Their partnership agreement calls for the income (loss) division to be

Wallace and Simpson formed a partnership with Wallace contributing $84,000 and Simpson contributing $64,000. Their partnership agreement calls for the income (loss) division to be based on the ratio of capital investments. Wallace sold one-half of his partnership interest to Prince for $61,000 when his capital balance was $84,000. The partnership would record the admission of Prince into the partnership as:

1. Debit Wallace, Capital $61,000; credit Prince, Capital $61,000.

2. Debit Wallace, Capital $42,000; credit Prince, Capital $42,000.

3. Debit Prince, Capital $61,000; credit Wallace, Capital $61,000.

4. Debit Wallace, Capital $42,000; credit Prince, Capital $42,000.

5. Debit Wallace, Capital $42,000; debit Cash $19,000; credit Prince, Capital $61,000.

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