Question

The Struter Partnership has total partners’ equity of $510,000, which is made up of Main, Capital, $400,000, and Frist, Capital, $110,000. The partners share net income and loss in a ratio of 80% to Main and 20% to Frist. On November 1, Adison is admitted to the partnership and given a 15% interest in the equity and a 15% share in any income and loss. Prepare journal entries to record the admission of Adison for a 15% interest in the equity and a 15% share in any income and loss under independent assumption. (1) Record the admission of Adison with an investment of $90,000 for a 15% interest in the equity and a 15% share in any income and loss. (2) Record the admission of Adison with an investment of $120,000 for a 15% interest in the equity and a 15% share in any income and loss. (3) Record the admission of Adison with an investment of $80,000 for a 15% interest in the equity and a 15% share in any income and loss.

Answer 1

Answer:

The journalized entries and calculations are in the explanation.

1. Debit Cash with $90,000 and Credit Adison with $90,000

2. Debit Cash with $120,000; Credit Adison with $94,500; Main- $20,400; FIrst- $5,100

3. Debit Cash with $80,000; Main-$6,800; First;$1,700, Credit Adison with $88,500

Explanation:

Calculation 1: Journalize the admission of Adison whose investment of $90,000 is for 15% interest in equity and 15% in sharing of any income or loss

Date                       Particulars                          Debit           Credit

Nov 1                     Cash                                  $90,000

                                 Adison, Capital                                   $90,000

Being the record of Adison into the Partnership business   ($510,000 + 90,000)= ($600,000 x 15%)      

                 

Calculation 2: The second question is to specifically record the Admission of Adison with $120,000 investment, 15% interest, and 15% sharing of profit or loss

To record this.

a. The cash account will be debited with the entire 120,000 while, credit will be as follows:

-$510,000 + $120,000( Adison) = $630,000

Adison, Credit = $630,000 x 15% = $94,500

Balance = $120,000- $94,500= $25,500 (to be shared by first two partners)

Main, Credit = 80% x $25,500= $20,400

First, Credit = 20% x $25,500 = $5,100

The Journal Entries are as follows:

Date                        Particulars                     Debit             Credit

Nov. 1                 Cash                                 $120,000

                            Capital, Adison                                       $94,500

                            Capital, Main                                           $20,400

                            Capital, First,                                           $5,100

Being the record of admitting Adison into the partnership

Calculation 3:   The second question is to specifically record the Admission of Adison with $80,000 investment, 15% interest, and 15% sharing of profit or loss

-$510,000 + $80,000( Adison) = $590,000

Adison, Credit = $590,000 x 15% = $88,500

Since, it is higher than the $80,000 contributed then the following calculations will occur

$80,000-$88,500= -$8,500, This amount will be debited to the first two partners based on their sharing ratio

Main, Debit= 80% x $8,500= $6,800

First, Debit= 20% x $8,500 = $1,700

Cash, Debit = $80,000 (the contribution of Adison)

Adison will then be credited with $88,500

The Journal Entries are as follows:

Date                        Particulars                     Debit             Credit

Nov. 1                 Cash                                 $80,000

                           Capital, Main                  $6,800

                            Capital, First,                 $1,700                  

                            Capital, Adison                                       $88,500

Being the record of admitting Adison into the partnership