At the start of 2014, Adria Lopez is considering adding a partner to her business. She envisions the new partner taking the lead in generating sales of both services and merchandise for Success Systems. A. Lopez’s equity in Success Systems as of January 1, 2014, is reflected in the following capital balance.
A. Lopez, Capital . . . . . . . . . . $ 90,148
1. A. Lopez is evaluating whether the prospective partner should be an equal partner with respect to capital investment and profit sharing (1:1) or whether the agreement should be 4:1 with Lopez retaining four-fifths interest with rights to four-fifths of the net income or loss. What factors should she consider in deciding which partnership agreement to offer?
2. Prepare the January 1, 2014, journal entry(ies) necessary to admit a new partner to Success Systems through the purchase of a partnership interest for each of the following two separate cases:
(a) 1:1 sharing agreement
(b) 4:1 sharing agreement.
3. Prepare the January 1, 2014, journal entry(ies) required to admit a new partner if the new partner invests cash of $ 22,537.
4. After posting the entry in part 3, what would be the new partner’s equity percentage?