Question 4 (10 Marks)

The balance sheet of the partnership of Ray, John and Tracy is presented below. They

share net income and losses equally.

RCT Partnership

Balance Sheet

Cash $ 5,000 Accounts payable $10,000

Inventory 80,000 Ray, Capital 20,000

John, Capital 40,000

_ Tracy, Capital 15,000

Total $ 85,000 Total $85,000

Required:

Prepare all necessary journal entries for each of the following independent situations.

1. R, J and T agree to admit W. W purchases one-half of the equity interest of John and pays John $20,000 cash personally.

2. R, J and T agree to admit W to a one-half equity interest in the partnership if she invests $45,000 cash into the partnership. Refer to the original data.

3. John wishes to retire. The partnership will pay John $30,000 for his equity.

John really wants to retire. Refer to the original data.