Problem

A condensed balance sheet for the Pet, Qua, and She partnership at December 31, 2011, and...

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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Solutions For Problems in Chapter 16