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(Solution Download) P 15-5 Adjusting Entries for Partner Admisson The CAB Partnership, although operating profitably, ha


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

P 15-5Adjusting Entries for Partner

 

Admisson

The CAB Partnership, although

 

operating profitably, has had a cash flow problem. Unable to meet

 

its

current commitments, the firm

 

borrowed $34,000 from a bank giving a long-term note. During a

 

recent

meeting, the partners decided

 

to obtain additonal cash by admiting a new partner to the firm.

 

They feel

that the firm is an

 

attractive investment, but that proper management of their liquid

 

assets will be required.

Meyers agrees to invest cash

 

in the firm if her chief accountant can reiew the accounting

 

records of the partnership.

The balance sheet for CAB Partnership as of Decemer

 

31, 2008, is as follows:

 

                       

 

Assets                                                                          

Cash8,000
Accounts Receivable33,600
Inventory (at cost)35,750
Land27,000
Building (net of

 

depreciation)

41,600
Equipment (net of

 

depreciation)

27,250
      

 

Total

173,200

 

                    

 

Libalities and

 

Capital                                                

Accounts Payable32,450
Other Current liabilites6,750
Long-term note (8% due

 

2008)

34,000
Cox, Capital37,500
Andrews, Capital25,000
Bennet, Capital37,500
   Total173,200
The review of the accounts

 

resulted in the accumulation of the following information:

1) Approximately 5% of the

 

accounts receivable are uncollectible. The old partnership had been

 

using

the direct write-off method of

 

accounting for bad debts.

2) Current replacement cost of

 

the inventory is $41,250.

3) The market value of the

 

land based on a current appraisal is $65,000.

4) The partners had been

 

using an unreasnably long estimated life in establishing a

 

depreciation policy

for the building. On the

 

basis of sound value (current replacement cost adjustment for

 

use.), the value

of the building is

 

$32,750.

5) There are unrecorded

 

accrued liabilities of $3,275.

 

          The

 

parthners agree to recognize the foregoing adjustments to the

 

account. Cox, Andrews, and

Bennet share profits

 

40.30.30. After the admission of Meyers, the new profit agrement is

 

to be 30.20.30.20.

Meyers is to recive a 25%

 

capital interest in the partnership after she invest sufficient cas

 

to increase

the total capital interest to

 

$150,000. Because of the uncertainty of the business, no goodwill

 

is to be

recognized before or after

 

Meyers is admitted.

Required:
A) Prepare the necessary

 

journal entries on the books of the old partnership to adjust the

 

accounts.

B) Record the admisson of

 

Meyers.

C) Prepare a new balance sheet

 

giving effect to the foregoing requirements.

 


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