The capital accounts of Robert Jewell and Donald Kane have balances of $60,000 a
ID: 2514953 • Letter: T
Question
The capital accounts of Robert Jewell and Donald Kane have balances of $60,000 and $80,000 respectively. James Abbey and George Bowman are to be admitted to the partnership. Abbey purchases one-third of Jewell's interest for $25,000 and one-fifth of Kane's interest for $20,000. Bowman contributes $40,000 cash to the partnership, for which he is to receive an ownership equity of $40,000.
INSTRUCTIONS: (a) Present the entries in general journal form to record the admission to the partnership of (1) Abbey and (2) Bowman.
(b) What are the capital balances of each partner after Abbey and Bowman have been admitted as partners?
Explanation / Answer
a. Journal entries to record the admission to the partnership of 1. Abbey Jewell's Capital $20,000 Kane's Capital $16,000 Abbey's Capital $36,000 (to record admission of Abbey) 1/3rd Jewell's interest (60000 x 1/3) $20,000 1/5 Kane's interest (80000 x 1/5) $16,000 For the purpose of accounting, we have to take the book values of the transferred interest. Jewell and kane both sold their interest at profit, but all this is their personal transaction and not relevent from accounting purpose. 2. Bowman Cash $40,000 Bowman's Capital $40,000 (To record admission of Bowman) b. Capital balances of each partner after Abbey and Bowman have been admitted as partners Jewell $40,000 (60000-20000) Kane $64,000 (80000-16000) Abbey $36,000 (20000+16000) Bowman $40,000
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