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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Admitting new partner with bonus

L. Bowers and V. Lipscomb are partners in Elegant Event Consultants. Bowers and Lipscomb share income equally. M. Ortiz will be admitted to the partnership. Prior to the admission, equipment was revalued downward by $8,000. The capital balances of each partner are $96,000 and $40,000, respectively, prior to the revaluation.

  1. a. Provide the journal entry for the asset revaluation.
  2. b. Provide the journal entry for Ortiz's admission under the following independent situations:
    1. 1. Ortiz purchased a 20% interest for $20,000.
    2. 2. Ortiz purchased a 30% interest for $60,000.

a.

To determine

Partnership

It is that form of organization which is owned and managed by two or more persons who invest and share the profits and losses according to a pre-determined ratio.

Forming a Partnership

While forming the partnership, the contribution of assets by partners are debited to the partnership assets account; whereas the liabilities of the partnerships are credited to the partnership’s liabilities account, and the net amount of the investments of partners are credited to the partners’ individual capital account.

To record:  The journal entry for the asset revaluation.

Explanation

Working Note:

Calculation of share of partners in the revaluation loss

Revaluation Loss = $8,000
Profit sharing ratio = 1:1

So each partner will bear $4,000...

b. 1

To determine

To provide: The journal entry

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