Question

Admitting New Partners Who Buy an Interest and Contribute Assets

The capital accounts of Trent Henry and Tim Chou have balances of $162,500 and $117,200, respectively. LeAnne Gilbert and Becky Clarke are to be admitted to the partnership. Gilbert buys one-fifth of Henry’s interest for $37,400 and one-fourth of Chou’s interest for $25,800. Clarke contributes $39,700 cash to the partnership, for which she is to receive an ownership equity of $39,700.

a1. Journalize the entry to record the admission of Gilbert. For a compound transaction, if an amount box does not require an entry, leave it blank.

	Trent Henry, Capital
	Tim Chou, Capital
	LeAnne Gilbert, Capital

a2. Journalize the entry to record the admission of Clarke.

	Cash
	Becky Clarke, Capital

b. What are the capital balances of each partner after the admission of the new partners?

Partner	Capital Balance
Trent Henry	$
Tim Chou	$
LeAnne Gilbert	$
Becky Clarke	$

Answer 1

The cash settlement (by Gilbert) happens between the partners (Henry and Chou)privately for the share received.Hence, cash settlement entries does not fall part of the partnership books of accounts

a1.

	Debit	Credit	Calculation
Trent Henry, Capital	32500		162500*1/5
Tim Chou, Capital	29300		117200*1/4
LeAnne Gilbert, Capital		61800	sum

a2.

	Debit	Credit
Cash	39700
Becky Clarke, Capital		39700

b

	A	B		C		A+C-B
Partner	Opening balance	Debit	REFERENCE	Credit	REFERENCE	Capital Balance
Trent Henry	1,62,500.00	32,500.00	Entry a1			1,30,000.00
Tim Chou	1,17,200.00	29,300.00	Entry a1			87,900.00
LeAnne Gilbert	-			61,800.00	Entry a1	61,800.00
Becky Clarke	-			39,700.00	Entry a2	39,700.00
	2,79,700.00	61,800.00		1,01,500.00		3,19,400.00