After the tangible assets have been adjusted to current market prices, the capit
ID: 2408954 • Letter: A
Question
After the tangible assets have been adjusted to current market prices, the capital accounts of Brad Paulson and Drew Webster have balances of $47,560 and $56,520, respectively. Austin Neel is to be admitted to the partnership, contributing $28,150 cash to the partnership, for which he is to receive an ownership equity of $32,900. All partners share equally in income. Required: A. On December 31, journalize the entry to record the admission of Neel, who is to receive a bonus of $4,750. Refer to the Chart of Accounts for exact wording of account titles. B. What are the capital balances of each partner after the admission of the new partner? C. Why are tangible assets adjusted to current market prices, prior to admitting a new partner?
Explanation / Answer
Journal entry Cash Account Dr. 28150 Brad Paulson Capital (4750/2) 2,375 Drew webster Capital Account Dr. (4750/2) 2375 Austin Neel Capital Account 32,900 Capital balaances Paulson Webster Neel Beginning Capital 47560 56,520 Cash brought in 28150 Bonus to new partner -2375 -2375 4750 Balance in capital after admission 45185 54145 32,900 The Assets and liabilities of firm is revalued before admission. To know the actual financial position of the business. And to give the benefit of profits on the increase in financial assets And to take away the expected loss on realisation of assets assessed through revaluation.