Question

After the tangible assets have been adjusted to current market prices, the capital accounts of Brad Paulson and Drew Webster have balances of $47,560 and $56,520, respectively. Austin Neel is to be admitted to the partnership, contributing $28,150 cash to the partnership, for which he is to receive an ownership equity of $32,900. All partners share equally in income. Required: A. On December 31, journalize the entry to record the admission of Neel, who is to receive a bonus of $4,750. Refer to the Chart of Accounts for exact wording of account titles. B. What are the capital balances of each partner after the admission of the new partner? C. Why are tangible assets adjusted to current market prices, prior to admitting a new partner?

Answer 1

Journal entry
Cash Account Dr.				28150
Brad Paulson Capital (4750/2)				2,375
Drew webster Capital Account Dr. (4750/2)				2375
Austin Neel Capital Account					32,900
Capital balaances
			Paulson	Webster	Neel
Beginning Capital			47560	56,520
Cash brought in					28150
Bonus to new partner			-2375	-2375	4750
Balance in capital after admission			45185	54145	32,900
The Assets and liabilities of firm is revalued before admission.
To know the actual financial position of the business.
And to give the benefit of profits on the increase in financial assets
And to take away the expected loss on realisation of assets assessed through revaluation.