P 16-7 Purchases of interest from existing partners Kiyoshi and Masao are partners with capital balances of $1,750,000 and $1,500,000, respectively. They divide the profits as follows: 70% to Kiyoshi and 30% to Masao. The partners agree to admit Naoki into the partnership. Naoki purchases 40% interest of each existing partner for $1,800,000 directly to Kiyoshi and Masao.

REQuIRED:

Assuming the goodwill approach is used:

1. Prepare all necessary journal entries.

2. Prepare a schedule to allocate the capital balances.

Assuming the bonus approach is used:

1. Prepare all necessary journal entries.