Question 4
The balance sheet of the partnership of Ray, John and Tracy is presented below. They
share net income and losses equally.
RCT Partnership
Balance Sheet
Cash $ 5,000 Accounts payable $10,000
Inventory 80,000 Ray, Capital 20,000
John, Capital 40,000
_ Tracy, Capital 15,000
Total $ 85,000 Total $85,000
Required:
Prepare all necessary journal entries for each of the following independent situations.
1. R, J and T agree to admit W. W purchases one-half of the equity interest of John and pays John $20,000 cash personally.
2. R, J and T agree to admit W to a one-half equity interest in the partnership if she invests $45,000 cash into the partnership. Refer to the original data.
3. John wishes to retire. The partnership will pay John $30,000 for his equity.
John really wants to retire. Refer to the original data.
Ans
| S.No. | Account Titles | Debit | Credit |
| 1 | John's Capital | $20,000 | |
| W's Capital | $20,000 | ||
| (To record entry of W in partnership in some share of John) | |||
| 2 | Cash | $45,000 | |
| R's Capital (WN-1) | $5,000 | ||
| J's Capital (WN-1) | $5,000 | ||
| T's Capital (WN-1) | $5,000 | ||
| W's Capital (WN-1) | $60,000 | ||
| (To record cash bring by W with 50% interest) | |||
| 3 | J's Capital | $40,000 | |
| R's Capital (WN-2) | $5,000 | ||
| T's Capital (WN-2 | $5,000 | ||
| Cash | $30,000 | ||
| (To record retirement of John) |
Working Note
1) New combined capital after admission of W = $120,000 ($20,000 + $40,000 +$15,000 +$45,000)
W's Share in Partnership @ 50% = $60,000
Therefore, Shortfall of $15,000 ($60,000 - $45,000) to be borne by R, J & T in 1:1:1.
2) J's Capital Balance = $40,000
Less : Cash paid to J = ($30,000)
Therefore, Deficiency of $10,000 to be borne by R & T in 1:1.
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