Question $3(15$ marks$)$

Klein, Leonard, and Mickle are partners in the KLM Partnership. Their profit and loss

sharing ratio is $3$:$2$:$1,$ respectively. Klein retires and is bought out by the remaining

partners. The partners' current capital account balances are $$147,000,$$$98,000,$ and

$$49,000,$ respectively. The plan is to revalue the Land and Inventory and then for

Leonard and Michle to buy Klein out. The new net income agreement for Leonard and

Mickle will be $1$:$3.$

Required

a$.$ The partners agree to revalue the assets. Land with a cost of $$90,000$ has a current

market value of $$120,000.$ Inventory with a cost of $$50,000$ has a current market value of

$$35,000.$ Prepare entries for these transactions.

b$.$ After the assets are revalued, the partnership agrees to give Klein $$75,000$ cash and a

note payable for $$65,000.$ Prepare entries for these transactions involving the retirement

of Klein, and round to the nearest dollar.