Question

Nancy Conradt and Chris Russell are partners who share profits and losses in the ratio of 60:40, respectively. On December 31, 2019, they decide that Russell will sell one-half of his interest to Pam Ortega. At that time, the balances of the capital accounts are $640,000 for Conradt and $840,000 for Russell. The partners agree that before the new partner is admitted, certain assets should be revalued. These assets include merchandise inventory carried at $425,200 revalued at $413,000, and a building with a book value of $274,000 revalued at $502,000.

Record the revaluation entries and Determine the capital balances of the two existing partners after the revaluation is made.

Answer 1

Requirement 1: Record the following revaluation entries

Date	Account Title and Explanation	Debit	Credit
Dec 31	Nancy, Capital (12,200 × 60%)	$7,320
2019	Chris, Capital (12,200 × 40%)	$4,880
	Merchandise inventory ($425,200 − $413,000)		$12,200
	To record revaluation loss on merchandise inventory
	Building ($502,000 − $274,000)	$228,000
	Nancy, Capital (228,000 × 60%)		$136,800
	Chris, Capital (228,000 × 40%)		$91,200
	To record revaluation gain on buildings

Requirement 2: Compute partner capital capital balances as follows

Particulars	Nancy	Chris
Capital balances of existing partners before revaluation adjustments	$640,000	$840,000
Loss on merchandise inventory revaluation	($7,320)	($4,880)
Gain on building revaluation	$136,800	$91,200
Capital balances of existing partners after revaluation adjustments	$769,480	$926,320