Question

Greg Thomas purchased one-half of Ian Hamilton’s interest in the Freidman and Hamilton partnership for $49,500. Prior to the investment, land was revalued to a market value of $189,200 from a book value of $116,400. Adam Freidman and Ian Hamilton share net income equally. Hamilton had a capital balance of $52,400 prior to these transactions.

1. Provide the journal entry for the revaluation of land.

2. Provide the journal entry to admit Thomas.

Adriana Gonzalez and Sylvester Van Horne formed a partnership, dividing income as follows:

1. Annual salary allowance to Gonzalez of $25,000.

2. Interest of 5% on each partner’s capital balance on January 1.

3. Any remaining net income divided to Gonzalez and Van Horne, 2:1.

Gonzalez and Van Horne had $126,000 and $189,000, respectively, in their January 1 capital balances. Net income for the year was $115,000.

How much net income should be distributed to Gonzalez and Van Horne?

Answer 1

Journal
Date	Particulars	Debit	Credit
	Land Account	Dr	72,800
	To	Friedman's Capital			36,400
	To	Hamilton's Capital			36,400
	Cash Account	Dr	49,500
	To	Greg Thomas' Capital			49,500
	(Being amount brought in by the new partner
	on admission)
	Greg Thomas' Capital		5,100
	To	Hamilton's Capital			5,100
	(Being goodwill brought in by the new partner
	distributed to old partners in sacrificing ratio)

Capital balance of Hamilton	52,400
Revaluation of land	36,400
	88,800
One-half of Hamiltons interest (88,800 * 1/2)	44,400
Amount paid by Greg Thomas to purchase the interest	49,500
Amount paid in excess or Goodwill (49,500 - 44,400)	5,100
Goodwill is usually distributed to old partners in sacrificing
ratio (Only Hamilton sacrifices.Hence the entire amount is
distributed to him)

Question 2
Net Income for the year		115,000
Less: Annual salary allowance to Gonzalez		(25,000)
Less: Interest on capital @ 5%
	Gonzalez	(126,000 * 5%)	6,300
	Van Horne	(189,000 * 5%)	9,450
				(15,750)
Net income to be distributed		74,250
Distribution to:
	Gonzalez	(74,250 * 2/3)		49,500
	Van Horne	(74,250 * 1/3)		24,750