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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

Revaluing and contributing assets to a partnership

Craig Roberta purchased one-half of Ennis Leighton's interest in the Vale and Leighton partnership for $34,000. Prior to the investment, land was revalued to a market value of $130,000 from a book value of $80,000. Tony Vale and Ennis Leighton share net income equally. Leighton had a capital balance of $36,000 prior to these transactions.

  1. a. Provide the journal entry for the revaluation of land.
  2. b. Provide the journal entry to admit Roberta.

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.

Revaluation of assets

Prior to the admission of new partners in the firm, all assets of the firm are stated in the current value or in the adjusted value. Due to revaluation any net increase or decrease in the asset value is treated as revaluation profit and loss respectively. Revaluation profit or loss is shared among the existing partners.

To provide:  The journal entry for revaluation of Land.

Explanation

Working Notes:

RevaluationProfit=$130,000-$80,000=$50,000

(1)

Share of T and E is equal

K=($50,000×12)</

b.

To determine

To provide: The journal entry to admit R.

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