Question

1: Summer has a capital balance of $28,000​; Saxton​'s balance is $22,000. Harrett pays $120,000 to purchase Saxton's

interest in the Summer ​& Saxton partnership. Saxton receives the full $120,000.

Journalize the​ partnership's transaction to admit Harrett to the partnership.

2: Must Summer accept Harrett as a full​ partner? What rights does Harrett have after purchasing Saxton​'s interest in the​ partnership?

A. Summer must accept Harrett into the partnership. Harrett automatically becomes a partner with the full rights and benefits that any other partner has according to the partnership agreement.

B. Summer has the right to refuse to accept Harrett into the partnership. Harrett must go through a thirty day trial period to ensure his ideas of the partnership are similar to the other partners. Any partner who owns more than​ 50% of the partnership must also agree to accept Harrett as a full partner.​ Partner's owning less than​ 50% can voice their​ opinion; however, it is not mandatory to take their vote into account.

C. Summer must accept Harrett into the partnership. After Harrett purchases Saxton​'s interest in the​ partnership, he has up to thirty days to inform the other partners of any changes he would like to make. If these changes are not approved​ unanimously, Harrett can terminate his purchase into the partnership.

D. Summer has the right to refuse to accept Harrett into the partnership. After being accepted into the partnership and purchasing the partnership interest of Saxton​, Harrett has the full rights of a partner.​ However, Summer has to agree to this change.

Answer 1

Requirement 1

When a old partner gets replaced by a new partner in a firm, then the consideration paid by the newly admitted partner to the retiring partner is a personal transaction and not recorded in the books. However, the capital balance of retiring partner as on the date of reconstitution gets replaced with the newly admitted partner.

The Journal entry is as follows-
Saxton's Capital A/C Dr $ 22,000
To Harrett's Capital A/C $ 22,000
(To record the sale of partnership interest by Saxton to Harrett)

Requirement 2

The solution for Requirement 2 is 'D'.
Summer has the right to refuse to accept Harrett into the partnership. After being accepted into the partnership and purchasing the partnership interest of Saxton​, Harrett has the full rights of a partner.​ However, Summer has to agree to this change.