Problem 19.5A (Algo) Accounting for revaluation of assets and liabilities of a partnership, investment of a new partner, and withdrawal of a partner. LO 19-6, 19-8, 19-9

The balance sheet of Adams Pharmacy after the revenue, expense, and partners’ drawing accounts have been closed on December 31, 20X1, follows:

ADAMS PHARMACY

Balance Sheet

December 31, 20X1

Assets

  Cash
$83,100

  Accounts Receivable
16,700

  Merchandise Inventory
430,500

  Equipment
$171,000

  Accumulated Depreciation—Equipment
99,500

71,500

  Building
414,000

  Accumulated Depreciation—Building
327,000

87,000

  Land
47,000

  Total Assets
$735,800

Liabilities and Partners' Equity

  Liabilities

  Accounts Payable
$411,900

  Taxes Payable
22,900

  Total Liabilities
434,800

  Partners’ Equity

  Larry Adams, Capital
$167,000

  Hazel Adams, Capital
67,000

  Isiah Adams, Capital
67,000

  Total Partners’ Equity
301,000

  Total Liabilities and Partners' Equity
$735,800

On that date, Larry Adams, Hazel Adams, and Isiah Adams agree to admit Vickie Neal to the partnership. The partnership agreement provides that, in case of dissolution of the partnership, all assets and liabilities should be revalued. Profits and losses are shared in the ratio of 50:25:25, to Larry, Hazel, and Isiah, respectively. The agreed-upon values of the assets are as follows:

Accounts receivable $
15,000
Building $
134,500

Merchandise inventory
405,400
Land
98,500

Equipment
71,500

All liabilities are properly recorded.

Required:

Prepare the general journal entries to record revaluation of the assets.

Prepare the general journal entry (or entries) to record Vickie Neal’s investment of $120,000, assuming that she is to receive capital equal to the amount invested.

Prepare the general journal entry (or entries) to record Vickie Neal’s investment of $120,000, assuming that she is to receive one-fifth of the capital of the partnership.

Prepare the general journal entry (or entries) to record Vickie Neal’s investment of $120,000, assuming that she is to receive one-third of the capital of the partnership.

Assume that after the revaluation had been recorded, the existing partners and Vickie Neal decided that their previous agreement should be canceled and that Vickie Neal should not become a partner. Instead, the partners agreed that Hazel Adams would withdraw from the partnership and be paid cash by the partnership.

Prepare the general journal entry to record the payment to Hazel Adams if she is paid an amount equal to her capital account balance after the revaluation.

Prepare the general journal entry to record the payment to Hazel Adams if she is paid an amount equal to $14,100 less than her capital account balance after revaluation.

Prepare the general journal entry to record the payment to Hazel Adams if she is paid an amount equal to $11,700 more than her capital account balance after revaluation.

Analyze:
Assume that the assets have been revalued and that Vickie Neal has invested $120,000 in the partnership receiving one-fifth of the capital in the partnership. What is the balance of Isiah Adams’s capital account at January 1, 20X2?

Transcribed Image Text:Analyze: Assume that the assets have been revalued and that Vickie Neal has invested $120,000 in the partnership receiving one-fifth of the capital in the partnership. What is the balance of Isiah Adams's capital account at January 1, 20X2? Complete this question by entering your answer in the tabs below. Req 1 to 4 Req 5 Analyze Assume that the assets have been revalued and that Vickie Neal has invested $120,000 in the partnership receiving one-fifth of the capital in the partnership. What is the balance of Isiah Adams's capital account at January 1, 20X2? Capital account balance, January 1, 20X2 < Req 5 Analyze >
Transcribed Image Text:Analyze: Assume that the assets have been revalued and that Vickie Neal has invested $120,000 in the partnership receiving one-fifth of the capital the partnership. What is the balance of Isiah Adams's capital account at January 1, 20X2? Complete this question by entering your answer in the tabs below. Req 1 to 4 Reg 5 Analyze Prepare the general journal entries. View transaction list View journal entry worksheet No Transactions General Journal Debit Credit 1 a Hazel Adams, Capital 86,500 Cash 2 b Hazel Adams, Capital Cash Larry Adams, Capital Isiah Adams, Capital 3 Hazel Adams, Capital Isiah Adams, Capital Larry Adams, Capital Req 1 to 4 Analyze >

Question

Problem 19.5A (Algo) Accounting for revaluation of assets and liabilities of a partnership, investment of a new partner, and withdrawal of a partner. LO 19-6, 19-8, 19-9

The balance sheet of Adams Pharmacy after the revenue, expense, and partners’ drawing accounts have been closed on December 31, 20X1, follows:

ADAMS PHARMACY
Balance Sheet
December 31, 20X1
Assets
Cash		$83,100
Accounts Receivable		16,700
Merchandise Inventory		430,500
Equipment	$171,000
Accumulated Depreciation—Equipment	99,500	71,500
Building	414,000
Accumulated Depreciation—Building	327,000	87,000
Land		47,000
Total Assets		$735,800
Liabilities and Partners' Equity
Liabilities
Accounts Payable		$411,900
Taxes Payable		22,900
Total Liabilities		434,800
Partners’ Equity
Larry Adams, Capital	$167,000
Hazel Adams, Capital	67,000
Isiah Adams, Capital	67,000
Total Partners’ Equity		301,000
Total Liabilities and Partners' Equity		$735,800

On that date, Larry Adams, Hazel Adams, and Isiah Adams agree to admit Vickie Neal to the partnership. The partnership agreement provides that, in case of dissolution of the partnership, all assets and liabilities should be revalued. Profits and losses are shared in the ratio of 50:25:25, to Larry, Hazel, and Isiah, respectively. The agreed-upon values of the assets are as follows:


Accounts receivable	$	15,000	Building	$	134,500
Merchandise inventory		405,400	Land		98,500
Equipment		71,500

All liabilities are properly recorded.

Required:

Prepare the general journal entries to record revaluation of the assets.
Prepare the general journal entry (or entries) to record Vickie Neal’s investment of $120,000, assuming that she is to receive capital equal to the amount invested.
Prepare the general journal entry (or entries) to record Vickie Neal’s investment of $120,000, assuming that she is to receive one-fifth of the capital of the partnership.
Prepare the general journal entry (or entries) to record Vickie Neal’s investment of $120,000, assuming that she is to receive one-third of the capital of the partnership.

Assume that after the revaluation had been recorded, the existing partners and Vickie Neal decided that their previous agreement should be canceled and that Vickie Neal should not become a partner. Instead, the partners agreed that Hazel Adams would withdraw from the partnership and be paid cash by the partnership.

Prepare the general journal entry to record the payment to Hazel Adams if she is paid an amount equal to her capital account balance after the revaluation.
Prepare the general journal entry to record the payment to Hazel Adams if she is paid an amount equal to $14,100 less than her capital account balance after revaluation.
Prepare the general journal entry to record the payment to Hazel Adams if she is paid an amount equal to $11,700 more than her capital account balance after revaluation.

Analyze:
Assume that the assets have been revalued and that Vickie Neal has invested $120,000 in the partnership receiving one-fifth of the capital in the partnership. What is the balance of Isiah Adams’s capital account at January 1, 20X2?

Accepted Answer

Larry Adams, Hazel Adams, and Isiah Adams are partners in the partnership firm and they agree to…

Particulars	Book Value	Revalued amount	Increase/(Decrease)
Accounts receivable	16700	15000	(1700)
Building	87000	134500	47500
Merchandise inventory	430500	405400	(25100)
Land	47000	98500	41500
Equipment	71500	71500	0