Admitting New Partners Lily Yuan and Kayla Dunn are partners who share in the in

Question

Admitting New Partners Lily Yuan and Kayla Dunn are partners who share in the income equally and have capital balances of $180,000 and $62,500, respectively. Yuan, with the consent of Dunn, sells one-third of her interest to Rachel Burnett. a. What entry is required by the partnership if the sales price is $40,000? ____________________ ____________________ ____________________ ____________________ b. What entry is required by the partnership if the sales price is $80,000? _____________________ _____________________ _____________________ ____________________

Explanation / Answer

The purchase of partnership interest is a personal transaction between one or more current partners and the new partner. To become a partner, the current partners must accept the purchaser. Accounting for the purchase of partnership interest involves reallocating current partners’ capital to reflect the transaction Total Capital befor eadmiiting Rachel = 180000+62500 = $242,500 Yuan, with the consent of Dunn, sells one-third of her interest to Rachel Burnett. SO Yuan sells 180000/3 = 60000 to Rachell for 40000. a. SO entry is mmddyy Yuan Capital A/C Dr 60000 Rachel Capital A/C Cr 60000 The Loss of 60000-40000 =20000 is Yuan personal Loss & will not be in Partneship books Post this, Parteship will be in ration of Y:D:R will be 120000:62500:60000 b. When Sale is for 80000. SO entry is mmddyy Yuan Capital A/C Dr 60000 Rachel Capital A/C Cr 60000 TheGain of 80000-60000 = 20000 is Yuan personal gain & will not be in Partneship books. Post this, Parteship will be in ration of Y:D:R will be 120000:62500:60000

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