The capital accounts of Trent Henry and Tim Chou have balanc

The capital accounts of Trent Henry and Tim Chou have balances of $146,000 and $93,800, respectively. LeAnne Gilbert and Becky Clarke are to be admitted to the partnership. Gilbert buys one-fifth of Henry’s interest for $29,100 and one-fourth of Chou’s interest for $21,300. Clarke contributes $69,400 cash to the partnership, for which she is to receive an ownership equity of $69,400.

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Chart of Accounts

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Journal

A. On December 31, journalize the entries to record the admission of (1) Gilbert and (2) Clarke. Refer to the Chart of Accounts for exact wording of account titles.

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JOURNAL

ACCOUNTING EQUATION

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B. What are the capital balances of each partner after the admission of the new partners?

Solution

Journal Entries (On Dec. 31)

1.) Cash A/C DR. $119,800

To, LeAnne Gilbert\'s Capital A/C ($29,100 + $21,300) $50,400

To, Becky Clarke\'s Capital A/C $69,400

( Cash received from admiting partners)

2.) LeAnne Gilbert\'s Capital A/C DR. $50,400

To, Trent Henry\'s Capital A/C $29,100

To, Tim Chou\'s Capital A/C $21,300

( Crediting old or sacrificing partner\'s capital accounts with the new or gaining partner by gaining partner\'s share of goodwill)

>>> Becky Clarke is not asking for sacrifice from old partners, her consideration is just the return on her investment in the partnership. So she will have no need to compensate old partners with her share of goodwill.

Capital Balance of Partners

Trent Henry\'s Capital A/C ( $146,000 + $29,100) -------------------------------------- $175,100

Tim Chou\'s Capital A/C ( $93,800 + $21,300) -------------------------------------- $115,100

LeAnne Gilbert\'s Capital A/C -------------------------------------- $0

Becky Clarke\'s Capital A/C -------------------------------------- $69,400