kala and leah partners in best designs hace capital balances of 40,000 and 60,00

Question

kala and leah partners in best designs hace capital balances of 40,000 and 60,000 respectively. adam joins the partnership by buying one-half of kala's interest for 30,000. in addition, because of adam's outstanding sales skills, the partners agree to increase his interest to 40% if he invests another 10,000. the income shareing ratio of kala, leah, and adam is 4:3:1. A) journalize the entries to record the admission of adam to the partnership B) immediately after adam's admission to the partnership, leah sells one-fourth of her interest to denton for 35,000. journalize the entry to record this transaction.

Explanation / Answer

a) Cash Dr. 10,000 Kala, Capital Dr. 28,000 Leah, Capital Dr. 6,000 Adam, Capital Cr. 44,000 Following the addition of 10,000 cash, the total interest was 110,000. 40% of that is 44,000. Since 14,000 of that 44,000 has not already been allocated (cash, original one-half of Kala's interest), we must allocate the 14,000 decrease to Kala and Leah according to their ratios: Kala (4/7) : 8000 Leah (3/7) : 6000 b) Leah, Capital Dr. 13500 Denton, Capital Cr. 13500 Leah's interest after the admission of Adam is 54,000 (60000-6000). One fourth of this interest is 13500.

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