Chap015Day2_class

Chap015Day2_class - 1 Chapter 15 Part II Changes in...

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Unformatted text preview: 1 Chapter 15 Part II Changes in Membership ¡ Admission of a new partner ¢ Purchase of a current interest ¢ Contribution to the Partnership 2 Admission of a New Partner ¡ When the makeup of the partnership changes, the partnership is dissolved. ¡ A new partnership is immediately formed. ¡ New partner acquires partnership interest by: ¢ Purchasing it from the other partners, or ¢ Making a contribution to the partnership. ¡ When the makeup of the partnership When the makeup of the partnership changes, the partnership is dissolved. changes, the partnership is dissolved. ¡ A new partnership is immediately formed. A new partnership is immediately formed. ¡ New partner acquires partnership interest New partner acquires partnership interest by: by: ¢ Purchasing it from the other partners, or Purchasing it from the other partners, or ¢ Making a contribution to the partnership. Making a contribution to the partnership. 3 Admission of a New Partner Purchase of a Current Interest ¡ A new partner can purchase partnership interest directly from the existing partners. ¢ The cash goes to the partners, not to the partnership. ¡ Two methods are available to account for the transfer of ownership. ¢ Book Value Approach ¢ Goodwill (Revaluation) Approach ¡ A new partner can purchase A new partner can purchase partnership interest directly partnership interest directly from the existing partners. from the existing partners. ¢ The cash goes to the partners, The cash goes to the partners, not to the partnership. not to the partnership. ¡ Two methods are available to Two methods are available to account for the transfer of account for the transfer of ownership. ownership. ¢ Book Value Approach Book Value Approach ¢ Goodwill (Revaluation) Goodwill (Revaluation) Approach Approach 4 Book Value Example ¡ Doe, Raye, and Mee have a partnership. ¡ Using the Book Value Approach, prepare the entry assuming Flatt pays $60,000 directly to the other partners for a 20% partnership interest. Partner Capital Balance Profit & Loss Ratio Doe $ 30,000 40% Raye $ 50,000 25% Mee $ 60,000 35% Admission of a New Partner Purchase of a Current Interest 5 Partnership General Journal Page 18 Date Description Debit Credit Admission of a New Partner Purchase of a Current Interest Book Value Example ¡ The cash goes to Doe, Raye, and Mee, NOT to the partnership. ¡ Each partner gives up 20% of their existing capital. Book Value Example ¡ The cash goes to Doe, Raye, and Mee, NOT to the partnership. ¡ Each partner gives up 20% of their existing capital. Prepare the journal entry to admit Flatt to the partnership. Prepare the journal entry to admit Flatt to the partnership. 6 P a r t n e r s h ip G e n e r a l J o u r n a l P a g e 1 8 D a t e D e s c r ip t io n D e b it C r e d it 3 1 - D e c C a p it a l - D o e 6 ,0 0 0 C a p it a l - R a y e 1 0 ,0 0 0 C a p it a l - M e e 1 2 ,0 0 0 C a p it a l - F la t t 2 8 ,0 0 0...
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