kala and leah partners in best designs have capital balances of $40,000 and $60,

Question

kala and leah partners in best designs have 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-sharing ratio for 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 the 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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