Admission of new partner—Revaluation
Assume that Partners A and B have Capital Accounts equal to
$720,000 and $360,000, respectively. Partner C wants to join the
partnership as one-third partner. Partner C contributes $1,530,000
in cash to the partnership in return for a one-third interest.
Prior to the admission of Partner C, Partners A and B wish to
revalue the long-term assets of the partnership. They obtain an
appraisal of the land and building that indicates a current value
of $1.8 million. The land and building are currently reported on
the partnership balance sheet at $360,000.
Record the journal entry on the books of the partnership to reflect the revaluation of the land and building and the admission of Partner C with a capital contribution of $1,530,000. Assume that despite the evidence of a previously unrecognized intangible asset, the partners do not wish to record the intangible asset.
| General Journal | ||
|---|---|---|
| Description | Debit | Credit |
| AnswerLand and BuildingsPartner A, CapitalPartner B, CapitalPartner C, CapitalCash | Answer | Answer |
| AnswerLand and BuildingsPartner A, CapitalPartner B, CapitalPartner C, CapitalCash | Answer | Answer |
| Partner B, Capital | Answer | Answer |
| To revalue land and buildings. | ||
| AnswerLand and BuildingsPartner A, CapitalPartner B, CapitalPartner C, CapitalCash | Answer | Answer |
| Partner A, Capital | Answer | Answer |
| Partner B, Capital | Answer | Answer |
| AnswerLand and BuildingsPartner A, CapitalPartner B, CapitalPartner C, CapitalCash | Answer | Answer |
| To record purchase of partnership interest by C. | ||
| General Journal | ||
|---|---|---|
| Description | Debit | Credit |
| Land and building (1800000 - 360000) | $1,440,000 | |
| A, Capital ($1,440,000 x 1/2) | $720,000 | |
| B, Capital ($1,440,000 x 1/2) | $720,000 | |
| (To revalue land and buildings.) | ||
| Cash | $1,530,000 | |
| Partner A, Capital (180000/2) | $90,000 | |
| Partner B, Capital (180000/2) | $90,000 | |
| C, Capital | $1,350,000 | |
| (To record purchase of partnership interest by C.) | ||
| A's capital (720000+720000) | 1440000 |
| B's capital(360000+720000) | 1080000 |
| C's contribution | 1530000 |
| Total owner equity after admitting C (1) | $4,050,000 |
| C's share (2) | 1/3 |
| C's capital (1x2) (3) | $1,350,000 |
| C's contribution (4) | 1530000 |
| Bonus to exiting partners (4-3) | $180,000 |
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