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Question
Derek and Hailey, partners sharing net income in the ratio of 2:1, admit Ben to the partnership in accordance with the following agreement:
• Merchandise inventory recorded in the partnership accounts at $62,500 is to be revalued at its current replacement price of $68,500.
• Ben invested $48,000 in cash for a 30% interest in the partnership, which has total net assets (assets minus liabilities) of $130,000 that includes the inventory revaluation and the cash invested by Ben.
• The income-sharing ratio of Derek, Hailey, and Ben is to be 2:1:1.
a. Journalize the entries for the revaluation of merchandise inventory and the admission of Ben to the partnership. (The partnership does not use the temporary asset revaluation account.)
b. A few years later, the capital balances of Derek, Hailey, and Ben were $150,000, $90,000, and $55,000, respectively. At this time, Kacy is admitted to the partnership by the purchase of one-half of Derek’s interest for $80,000. Journalize the entry for the admission of Kacy to the partnership.
Answer
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