Partnership – Dissolution
1.
Key, Riser, and Stone share income on a 6:3:1 basis. They have capital balances of $80,000,
$60,000, and $45,000, respectively, when Horton is admitted to the partnership. (Admission
by Purchase}
Instructions
Prepare the journal entry to record the admission of Horton into the partnership if Horton
purchases one-half of Key's equity for $45,000; one-half of Riser's equity for $22,000; and onethird of Stone's equity for $18,000.
Solution
Key, Capital .........................................................................................
Riser, Capital .......................................................................................
Stone, Capital ......................................................................................
Horton, Capital ............................................................................
40,000
30,000
15,000
85,000
2. Cindy Mills and Amy Peters have capital accounts of $480,000 and $420,000, respectively.
Bill Denny and Mark Morgan are to join the partnership. Denny invests $450,000 in the
partnership for which he receives a capital credit of $450,000. Morgan purchases a one-half
interest from Mills for $300,000 and a one-fourth interest from Peters for $90,000.
Instructions
(a) Prepare the journal entries to record the admission of Denny and Morgan to the partnership.
(b)
Determine the capital balances of the partners after the admission of Denny and Morgan.
a
Solution
(a)
(b)
Cash............................................................................................
Denny, Capital ....................................................................
450,000
Mills, Capital ................................................................................
Peters, Capital.............................................................................
Morgan, Capital ..................................................................
240,000
105,000
Mills ($480,000 – $240,000)
Peters ($420,000 – $105,000)
Denny
Morgan
Total Capital
450,000
345,000
$ 240,000
315,000
450,000
345,000
$1,350,000
3. Tom Rosen and Joe Finney share partnership income on a 3:2 basis. They have capital
balances of $560,000 and $280,000, respectively, when Ed Vann is admitted to the
partnership.
Instructions
Prepare the journal entry to record the admission of Vann under each of the following
assumptions:
(a) Vann invests $340,000 for a 25% ownership interest.
(b) Vann invests $200,000 for a 25% ownership interest.
(c) Vann invests an amount that gives him a 25% ownership interest.
4. Anne Kline and Beth Lewis, partners in Classy Boutique, have capital balances of
$40,000 and $60,000 respectively. Carol Martin joins the partnership by buying one-half
of Anne's interest for $30,000. In addition, because of Carol's outstanding sales skills,
the partners agree to increase her interest to 40% if she invests another $10,000. The
income-sharing ratio of Kline, Lewis, and Martin is 4:3:1.
(a) Journalize the entries to record the admission of Martin to the partnership.
(b) Immediately after Martin's admission to the partnership, Lewis sells one-fourth of her interest
to Deb Newton for $35,000. Journalize the entry to record this transaction.
ANS:
(a) Anne Kline, Capital..............20,000
Carol Martin, Capital.............
Cash................................
10,000
Anne Kline, Capital............... 8,000
Beth Lewis, Capital............... 6,000
Carol Martin, Capital.............
(b) Beth Lewis, Capital.............13,500
Deb Newton, Capital...............
20,000
24,000
13,500
5. Browning and Douglas are partners who agree to admit Taylor to their partnership. Browning has a
capital balance of $51,000 and Douglas has a capital balance of $70,000. Browning and Douglas
share net income in the ratio of 2:8. Prepare journal entries to admit Taylor to the partnership
based on the following independent agreements. Round all amounts to the nearest dollar.
a)
b)
c)
d)
Taylor invests $50,000 cash into the partnership for a 20% interest.
Taylor invests $50,000 cash into the partnership for a 30% interest.
Taylor purchases one-third of Browning's capital for $20,000.
Taylor purchases one-half of Douglas's capital for $31,000.
6. Billie Gordon and Willie Johnson have capital balances of $200,000 and $250,000,
respectively and have no net income/net loss agreement. On January 1, 20X4,
they agree to admit Philip McBride into their partnership and give him a 30%
interest in the business.
Determine the balance in each partners' capital account immediately following the
admission of Philip in each of the following independent cases:
a) Philip contributes $250,000 cash to the business.
b) Philip contributes equipment valued at $275,000 to the business.
c)
Philip contributes land valued at $180,000 to the business.
7. Adel, Gaines, and Yockey share income and losses in a ratio of 3:2:5, respectively. The capital
account balances of the partners are as follows:
Adel, Capital
Gaines, Capital
Yockey, Capital
$600,000
360,000
240,000
Instructions
Prepare the journal entry on the books of the partnership to record the withdrawal of Yockey
under the following independent circumstances:
1. The partners agree that Yockey should be paid $280,000 by the partnership for his
interest.
2. The partners agree that Yockey should be paid $180,000 by the partnership for his
interest.
3. Adel agrees to pay Yockey $180,000 for one-half of his capital interest and Gaines
agrees to pay Yockey $180,000 for one-half of his capital interest in a personal
transaction among the partners.
8. Dixon, Larsen, and Polley have capital balances of $150,000, $100,000, and $75,000,
respectively, and their income ratios are 4:2:4.
Instructions
Record the withdrawal of Polley from the partnership under each of the following
assumptions:
1.
Polley is paid $75,000 from partnership assets.
2.
Polley is paid $90,000 from partnership assets.
3.
Polley is paid $55,000 from partnership assets.