Part B: (4 marks)

Ali and Fatima are partners whose capital balances are $400,000 and $300,000 and who share profits 3:2. Due to a shortage of cash, Ali and Fatima agree to admit Ahmed to the firm.

Instructions:

Prepare the journal entries required to record Ahmeds admission under each of the following independent assumptions:

1. Ahmed invests $200,000 for a 1/4 interest. The total firm capital is to be $900,000.
2. Ahmed invests $300,000 for a 1/4 interest. Goodwill is to be recorded.
3. Ahmed purchases a 1/4 interest in the firm, with 1/4 of the capital of each old partner transferred to the account of the new partner. Ahmed pays the partners cash of $250,000, which they divide between themselves.