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13 May, 10:25

Jipsom and Klark were partners with capital account balances of $80,000 and $100,000, respectively. Looney directly paid $32,000 to Jipsom and $40,000 to Klark for 30% of their interests in the partnership. Jipsom and Klark shared income in the ratio of 2:3. They believed that revaluation of the partnership was appropriate when a new partner was admitted. Prepare the journal entries to record the admission of looney to the partnership.

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  1. 13 May, 10:31
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    Answer and Explanation:

    Before recording the journal entries first we need to do following calculations

    Total amount paid is

    = $32,000 + $40,000

    = $72,000

    And the interest ratio is 30%

    So fair value of assets is

    = $72,000 : 30%

    = $240,000

    And, the current net assets is

    = $80,000 + $100,000

    = $180,000

    So, the goodwill is

    = $240,000 - $180,000

    = $60,000

    This amount is distributed in 2 : 3 ratio

    For Jipson = $24,000

    For Klark = $36,000

    Now the journal entries are

    1. Goodwill $60,000

    To Jipson capital $24,000

    To Klark capital $36,000

    (being the goodwill is recorded)

    2. Jipson capital ($80,000 + $24,000) * 30% $31,200

    Klark capital ($100,000 + $36,000) * 30% $40,800

    To Looney capital $72,000

    (Being the admission of Looney is recorded)
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