Chapter 12, Problem 4BPSB

To determine

Concept Introduction:

Partnership is a business entity in which two or more persons associate together to do a business. Basically, the persons join hands to achieve a common goal under one entity. The persons are known as partners. Partners invest capital in the business as per their predetermined ratio and profit and loss is distributed in pre-agreed profit sharing ratio. All the terms and conditions of partnership is incorporated in a written document which is known as partnership deed. The entity created under partnership is known as partnership firm.

In partnership firm, the new person can also join as a partner and and the existing partner can also leave the firm with mutual consent. When a person joins or leaves the partnership deed is amended and partner’s capital account is adjusted as per agreed terms and conditions.

Requirement-1:

To prepare:

In the question, there are three partners: Gibbs, Hook and Chan. Gibbs is retiring from the firm and we have to prepare journal entries for retirement of Gibbs under five scenarios as below:

1. Gibbs sells her partnership interest to Brady for 250,000 and brady is admitted in the firm as new partner.
2. Gibbs daughter in law Kannon is admitted into firm in place of Gibbs.
3. Gibbs get 606,000 in cash for her capital.
4. Gibbs get 350,000 in cash for her capital
5. Gibbs get 200,000 in cash and equipment which book value is 538,000 and accumulated depreciation is 336,000

To determine

Requirement-2:

To prepare:

We have to record journal entries if Mr. Chip is admitted into partnership firm with 20% equity and his investment is under three different scenarios:

1. If Chip investment is 300,000
2. If Chip investment is 196,000
3. If Chip investment is426,000