Question

After the tangible assets have been adjusted to current market prices, the capital accounts of Brad...

After the tangible assets have been adjusted to current market prices, the capital accounts of Brad Paulson and Drew Webster have balances of $84,000 and $126,000, respectively. Austin Neel is to be admitted to the partnership, contributing $56,000 cash to the partnership, for which he is to recieve an ownership equity of $73,000. All partners share equally in income.

Homework Answers

Answer #1
Account Titles and explanation Debit Credit
Cash 56,000
Brad Paulson, Capital
[73000-56000]*1/2
8500
Drew Webster, Capital 8500
Austin Neel , Capital 73,000
Capital balances
Brad Paulson, Capital 75500 [84000-8500]
Drew Webster, Capital 117500 [126000-8500]
Austin Neel , Capital 73000

Tangible assets should be adjusted to current market prices so that the new partner does not share any gains or losses from changes in market prices prior to being admitted. For example, if the market price of land doubled prior to admitting new partners, the existing partners should realize the increase in the value of the land in their capital accounts prior to the new partners’ admission. Otherwise,the new partner would share in the increase in the market value of the land.

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