Anna and Bess share partnership profits and losses at 60% and 40%, respectively. The partners agree to admit Cal into the partnership for a 50% interest in capital and earnings. Capital accounts immediately before the admission of Cal are:

Anna (60%)           $ 300,000
Bess (40%)              300,000
Total                     $ 600,000

Part 1: Prepare the journal entry(s) for the admission of Cal to the partnership, assuming Cal invested $400,000 for the ownership interest and that this is a fair price for that share of the partnership to be acquired. Cal paid the money directly to Anna and to Bess for 50% of each of their respective capital interests. The partnership records goodwill.

Part 2: Prepare the journal entry(s) for the admission of Cal to the partnership, assuming Cal invested $500,000 for the ownership interest. Cal paid the money to the partnership for a 50% interest in capital and earnings. Assume the valuation is based on the capital of the current partnership, which is fairly valued. The partnership records goodwill.

Part 3: Prepare the journal entry(s) for the admission of Cal to the partnership, assuming Cal invested $700,000 for the ownership interest and that this is a fair price for that share of the partnership to be acquired. Cal paid the money to the partnership for a 50% interest in capital and earnings. The partnership records goodwill.

Answer rating: 100% (QA)

Part1 Particulars Old Capital Sacrifice New Capital Anna Capital 300000 150000 150000 Bess Capital 3... View the full answer