Kala and Leah, partners in Best Designs, have capital balances of $40,000 and $6
ID: 2484105 • Letter: K
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 of Kala, Leah, and Adam is 4:3:1.
a. Journalize the entries to record (1) the purchase Kala's interest by Adam and (2) Adam's contribution of $10,000 to the partnership. For a compound transaction, if an amount box does not require an entry, leave it blank or enter "0".
(1)
(2)
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.
Hidea. Journalize the entries to record (1) the purchase Kala's interest by Adam and (2) Adam's contribution of $10,000 to the partnership. For a compound transaction, if an amount box does not require an entry, leave it blank or enter "0".
(1)
(2)
Explanation / Answer
a)
b)
Working
In addition, because of Adam's outstanding sales skills, the partners agree to increase his interest to 40%, if he invests another $10,000.
Prior to this
Kala, Capital = 20000
Leah, Capital = 60000
Adam,Capital = 20000
Total Capital = 100000
If additional cash is introduce of $ 10000, Now total capital = 110000
Adam , capital after this transaction = 110000*40% = 44000
Adam capital increase by = 44000-20000 = 24000
Loss in this transaction = Adam capital increase by - Cash Recieved
Loss in this transaction = 24000-10000
Loss in this transaction = 14000
It is to be shared between kala and leah in the ratio of 4:3
Kala share of loss = 14000*4/(4+3) = 8000
Leah share of loss = 14000*3/(4+3) = 6000
No Account Title & Explaination Debit Credit 1) Kala, Capital (40000*1/2) 20000 Adam,Capital 20000 2) Cash 10000 Kala, Capital 8000 Leah, Capital 6000 Adam,Capital 24000Related Questions
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