Derek and Hailey, partners sharing net income in the ratio of 2:1, admit Ben to

Question

Derek and Hailey, partners sharing net income in the ratio of 2:1, admit Ben to the partnership in accordance with the following agreement: Merchandise inventory recorded in the partnership accounts at $62,500 is to be revalued at its current replacement price of $68,500. Ben is to invest $48,000 in cash for a 30% interest in the partnership, which has total net assets (assets minus liabilities) of $130,000 after the inventory is revalued. The income-sharing ratio of Derek, Hailey, and Ben is to be 2:1:1. Journalize the entries to record the revaluation of merchandise inventory, and the admission of Ben to the partnership. A few years later, the capital balances of Derek, Hailey, and Ben w ere $ 150,000. $90,000, and $55,000 respectively. At this time, Kacy is admitted to the partnership by the purchase of one-half of Derek's interest for $80,000. Journalize the entry to record the admission of Kacy to the partnership.

Explanation / Answer

B

1/2 of 150000 =75000

DR CR a merchandise inventory 6000 Derek Capital 4000 hailey Capital 2000 cash 48000 Ben capital 130000*30% 39000 Hailey, Capital (48000-39000)*1/3 3000 Derek, Capital (48000-39000)*2/3 6000

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