Problem

The partnership of Add and Bal is adding a new partner, Cat, and its assets and equities a...

The partnership of Add and Bal is adding a new partner, Cat, and its assets and equities at book value and fair value just prior to her admission to the partnership on January 1, 2011, are as follows:

 

Book Value

Fair Value

Assets

 

 

Cash

$15,000

$15,000

Accounts receivable—net

45,000

40,000

Inventories

50,000

60,000

Plant assets—net

90,000

105,000

 

$200,000

$220,000

Equities

 

 

Accounts payable

$30,000

$30,000

15% note payable

50,000

40,000

Add capital (60%)

64,000

 

Bal capital (40%)

56,000

 

 

$200,000

 

On January 2, 2011, Add and Bal take Cat into the partnership of Add, Bal, and Cat for a 40 percent interest in capital and profits.

REQUIRED

1. Prepare journal entries for the admission of Cat into the partnership for an investment of $150,000 assuming that assets (including any goodwill) are revalued.


2. Prepare a balance sheet for the Add, Bal, and Cat partnership on January 2, 2011, just after the admission of Cat.

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Solutions For Problems in Chapter 16