Exercise 4

Edgar, Paz and Emy are partners sharing profit and loss in the ratio 30%, 40%, and 30% respectively. Their capital balances are 400,000; 500,000 and 300,000 respectively. The partners agreed to adjust their capital balances in proportion to their profit and loss ratio based on the firm's total partners equity or capital balances. The partners are going to make cash payments among themselves for the differences that will arise from this adjustment.

Direction.

a.) Prepare the table comparing original partners' equity with the agreed partners' equity

b) Based on the table, who among the partners will receive cash payment?

c) Give the journal entry to effect the rellocation of capital

Exercise 5

Using the data of Exercise 4 but assume, instead, that Georgina is admitted as a new partner by paying Edgar and Paz 300,000 for a 15% interest of the total partners' equity. The transfer of interest from Edgar and Paz will be in proportion to their capital balances.

Direction. Prepare a table revising partners' equity, give the entry to record the admission abd determine the revised profit and loss ratio