A condensed balance sheet for the Pet, Qua, and She partnership at December 31, 2011, and their profitand loss-sharing percentages on that date are as follows:
Condensed Balance Sheet at December 31, 2011 | |||
Cash | $15,000 | Liabilities | $50,000 |
Other assets | 185,000 | Pet capital (50%) | 75,000 |
Total assets | $200,000 | Qua capital (30%) | 50,000 |
|
| She capital (20%) | 25,000 |
|
| Total liabilities and capital | $200,000 |
On January 1, 2012, the partners decided to bring Tom into the partnership for a one-fourth interest in the capital and profits of the partnership. The following proposals for Tom’s admittance into the partnership were considered:
1. Tom would purchase one-half of Pet’s capital and right to future profits directly from Pet for $60,000.
2. Tom would purchase one-fourth of each partner’s capital and rights to future profits by paying a total of $45,000 directly to the partners.
3. Tom would invest $55,000 cash in the partnership for a 25 percent interest in capital. Future profits would be divided 37.5 percent, 22.5 percent, 15 percent, and 25 percent for Pet, Qua, She, and Tom, respectively.
REQUIRED: Prepare journal entries with supporting computations to show Tom’s admittance into the partnership under each of the above proposals assuming that:
1. Partnership net assets are not to be revalued
2. Partnership net assets are to be revalued
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