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The capital balances and profits- and loss-sharing percentages for the Sip, Jog, and Run partnership at December 31, 2016, are as follows:Sip capital (30%)$160,000Jog capital (50%)$180,000Run capital (20%)$140,000The partners agree to admit Wal into the partnership on January 1, 2017, for a 20 percent interest in the capital and income of the business.RequiredPrepare the journal entry or entries to record Wal’s admission to the partnership assuming that he invests $100,000 in the partnership for the 20 percent interest and that partnership capital is revalued. Assume that the book value of partnership assets equals the fair value.Prepare the journal entry or entries to record Wal’s admission to the partnership assuming that he invests $140,000 in the partnership for the 20 percent interest and that partnership capital is revalued.

Question

The capital balances and profits- and loss-sharing percentages for the Sip, Jog, and Run partnership at December 31, 2016, are as follows:

Sip capital (30%)

$160,000

Jog capital (50%)

$180,000

Run capital (20%)

$140,000

The partners agree to admit Wal into the partnership on January 1, 2017, for a 20 percent interest in the capital and income of the business.

Required

  1. Prepare the journal entry or entries to record Wal’s admission to the partnership assuming that he invests $100,000 in the partnership for the 20 percent interest and that partnership capital is revalued. Assume that the book value of partnership assets equals the fair value.

  2. Prepare the journal entry or entries to record Wal’s admission to the partnership assuming that he invests $140,000 in the partnership for the 20 percent interest and that partnership capital is revalued.

check_circleAnswer
Step 1

Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Step 2

1.

Journal entry for W’s admission with $100,000:

Post
Account Titles and Explanation
Debit (S)
Credit (S)
Date
Ref.
Cash
100,000
Goodwill
20,000
W's Capital
(Record inclusion of W's capital in
the partnership and revaluation)
120,000
Working Notes:
Compute goodwill amount
Good will New capital - Old capital New Investment
$160,000+$180,000+$140,000
80%
($160,000+S180,000+$140,000)+$100,000)
$600,000-$580,000
=$20,000
help_outline

Image Transcriptionclose

Post Account Titles and Explanation Debit (S) Credit (S) Date Ref. Cash 100,000 Goodwill 20,000 W's Capital (Record inclusion of W's capital in the partnership and revaluation) 120,000 Working Notes: Compute goodwill amount Good will New capital - Old capital New Investment $160,000+$180,000+$140,000 80% ($160,000+S180,000+$140,000)+$100,000) $600,000-$580,000 =$20,000

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Step 3

2.

Journal entry for W’s ad...

Post
Account Titles and Explanation
Credit (S)
Debit (S)
Date
Ref.
Goodwill
80,000
S's Capital (30%)
J's Capital (50%)
R's Capital (20%
(Record revaluation of partnership)
24,000
40,000
16,000
Cash
140,000
W's Capital
(Record W's investment)
140,000
help_outline

Image Transcriptionclose

Post Account Titles and Explanation Credit (S) Debit (S) Date Ref. Goodwill 80,000 S's Capital (30%) J's Capital (50%) R's Capital (20% (Record revaluation of partnership) 24,000 40,000 16,000 Cash 140,000 W's Capital (Record W's investment) 140,000

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