Admission of new partner-Revaluation Assume that Partners A and B have Capital A

Question

Admission of new partner-Revaluation Assume that Partners A and B have Capital Accounts equal to $480,000 and $240,000, respectively. Partner C wants to join the partnership as one-third partner. Partner C contributes $1,020,000 in cash to the partnership in return for a one-third interest. Prior to the admission of Partner C, Partners A and B wish to revalue the long-term assets of the partnership. They obtain an appraisal of the land and building that indicates a current value of $1.2 million. The land and building are currently reported on the partnership balance sheet at $240,000 Record the journal entry on the books of the partnership to reflect the revaluation of the land and building and the admission of Partner C with a capital contribution of $1,020,000. Assume that despite the evidence of a previously unrecognized intangible asset, the partners do not wish to record the intangible asset. General Journal Description Debit Credit Land and Buildings 480,000 Partner A, Capital Partner B, Capital revalue land and buildings. To Cash 1,020,000 Partner A, Capital Partner B, Capital Partner C, Capital To record purchase of partnership interest by C.

Explanation / Answer

Land and Building(1.2M - 240000)              960,000    Partners A,Capital              480,000    Partners B,Capital              480,000 To revalue the land and building Cash          1,020,000    Partners A,Capital              220,000    Partners B,Capital              220,000    Partners C,Capital              580,000 Total Capital Account 480000 + 240000 +1020000          1,740,000 C's Portion 1/3rd              580,000

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