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After the tangible assets have been adjusted to current market prices, the capital accounts of Brad Paulson and Drew Webster have balances of $45,110 and

After the tangible assets have been adjusted to current market prices, the capital accounts of Brad Paulson and Drew Webster have balances of $45,110 and $57,280, respectively. Austin Neel is to be admitted to the partnership, contributing $27,600 cash to the partnership, for which he is to receive an ownership equity of $33,070. All partners share equally in income.

Required:
A. On December 31, journalize the entry to record the admission of Neel, who is to receive a bonus of $5,470. Refer to the Chart of Accounts for exact wording of account titles.
B. What are the capital balances of each partner after the admission of the new partner?
C. Why are tangible assets adjusted to current market prices, prior to admitting a new partner?

Chart of Accounts

CHART OF ACCOUNTS
Paulson, Webster, and Neel
General Ledger
ASSETS
110 Cash
111 Petty Cash
112 Accounts Receivable
113 Allowance for Doubtful Accounts
114 Interest Receivable
115 Notes Receivable
116 Inventory
117 Office Supplies
118 Store Supplies
119 Prepaid Insurance
120 Land
123 Equipment
124 Accumulated Depreciation-Equipment
129 Asset Revaluations
133 Patent
LIABILITIES
210 Accounts Payable
211 Salaries Payable
213 Sales Tax Payable
214 Interest Payable
215 Notes Payable
EQUITY
310 Brad Paulson, Capital
311 Brad Paulson, Drawing
312 Drew Webster, Capital
313 Drew Webster, Drawing
314 Austin Neel, Capital
315 Austin Neel, Drawing
REVENUE
410 Sales
610 Interest Revenue
EXPENSES
510 Cost of Merchandise Sold
520 Salaries Expense
521 Advertising Expense
522 Depreciation Expense-Equipment
523 Delivery Expense
524 Repairs Expense
529 Selling Expenses
531 Rent Expense
533 Insurance Expense
534 Office Supplies Expense
535 Store Supplies Expense
536 Credit Card Expense
537 Cash Short and Over
538 Bad Debt Expense
539 Miscellaneous Expense
710 Interest Expense

Journal

A. On December 31, journalize the entry to record the admission of Neel, who is to receive a bonus of $5,470. Refer to the Chart of Accounts for exact wording of account titles.

PAGE 10

JOURNAL

ACCOUNTING EQUATION

DATE DESCRIPTION POST. REF. DEBIT CREDIT ASSETS LIABILITIES EQUITY

1

2

3

4

Final Questions

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

Partner

Balance

Brad Paulson
Drew Webster
Austin Neel

C. Why are tangible assets adjusted to current market prices, prior to admitting a new partner?

Tangible assets should be adjusted to current market prices so that the new partner any gains or losses from changes in market prices prior to being admitted. For example, if the market price of land doubled prior to admitting new partners, should realize the increase in the value of the land in their capital accounts prior to the new partners admission. Otherwise, would share in the increase in the market value of the land.

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