Jipsom and Klark were partners with capital account balances of $80,000 and $100,000, respectively. Looney directly paid $32,000 to Jipsom and $40,000 to Klark for 30% of their interests in the partnership. Jipsom and Klark shared income in the ratio of 2:3. They believed that revaluation of the partnership was appropriate when a new partner was admitted. Prepare the journal entries to record the admission of looney to the partnership.

Answer and Explanation:

Before recording the journal entries first we need to do following calculations

Total amount paid is

= $32,000 + $40,000

= $72,000

And the interest ratio is 30%

So fair value of assets is

= $72,000 ÷ 30%

= $240,000

And, the current net assets is

= $80,000 + $100,000

= $180,000

So, the goodwill is

= $240,000 - $180,000

= $60,000

This amount is distributed in 2 : 3 ratio

For Jipson = $24,000

For Klark = $36,000

Now the journal entries are

1. Goodwill $60,000

       To Jipson capital $24,000

       To Klark capital $36,000

(being the goodwill is recorded)

2. Jipson capital ($80,000 + $24,000) × 30%    $31,200

    Klark capital  ($100,000 + $36,000) × 30%   $40,800

           To Looney capital  $72,000

(Being the admission of Looney is recorded)

107x106 is the answer