Question

After the tangible assets have been adjusted to current market prices, the capital accounts of Brad Paulson and Drew Webster have balances of $45,000 and $60,000, respectively. Austin Neel is to be admitted to the partnership, contributing $30,000 cash to the partnership, for which he is to receive an ownership equity of $35,000. All partners share equally in income. Required: A. On December 31, journalize the entry to record the admission of Neel, who is to receive a bonus of $5,000. Refer to the Chart of Accounts for exact wording of account titles. B. What are the capital balances of each partner after the admission of the new partner? C. Why are tangible assets adjusted to current market prices, prior to admitting a new partner?

Answer 1

Solution:

A. On December 31, journalize the entry to record the admission of Neel, who is to receive a bonus of $5,000. Refer to the Chart of Accounts for exact wording of account titles.

Date	Particulars	Debit($)	Credit($)
Dec 31	Cash A/c Dr	$30,000
	Brad Paulson A/c Dr	$2,500
	Drew Webster A/c Dr	$2,500
	To Austin Neel  A/c		$35,000

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

Brad Paulson capital balance = $45,000 - $2,500

= $42,500

Drew Webster capital balance = $60,000 - $2,500

= $57,500

Austin Neel  capital balance = $35,000

C. Why are tangible assets adjusted to current market prices, prior to admitting a new partner?,,

Reason of revaluation of tangible assets is to refresh the reasonable estimation of Assets to avoid any misfortune to new accomplice from a bogus proclamation. Since, commitment estimation of new partner is determined based on current reasonable estimation of business.

In this way, it is required to change the estimation of tangible assets for current market cost before conceding another Partner.