2.) Paul and Ray sell musical instruments through their partnership. To bring in

Question

2.) Paul and Ray sell musical instruments through their partnership. To bring in additional funds and expertise, they decide to admit Janet to the partnership. Paul's capital is $400,000, Ray's capital is $200,000, and they share income in a ratio of 7:3, respectively. Required: Record Janet's admission for each of the following independent situations: a) Janet invests $180,000 for a one-fourth interest. Goodwill is to be recorded. b) Paul and Ray agree that some of the inventory is obsolete. The inventory account is decreased before Janet is admitted. Janet invests $190,000 for a one-fourth interest.

Explanation / Answer

Janet's Share of Contribution 180000 Janet's Share of Contribution as per ratio- Paul Capital 400000 Ray Capital 200000 Janet Share 180000 780000 Janet Contribution 195000 Goodwill to be recorded 15000 Journal Entry 1 Bank a/c dr 180000 Goodwill a/c dr 15000      To Janet Capital 195000 2 Bank a/c dr 190000 Goodwill a/c dr 5000      To Janet Capital 195000 No adjustment of stock has been done as no value of imparment of stock has been provided

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