Chapter 12, Problem 7QS

To determine

Concept Introduction:

Partnership:

Partnership is one of the types of business origination. Under the partnership, two or more individuals agree to form a business together and share losses and profits in the predetermined ratio.

Admission of a partner:

An existing partnership may admit a new partner and a new partnership is formed. The accounting of admission of new partner depends upon the way of admission of the partner. A new partner may admit in an existing firm in following ways:

1. By bringing a new asset or cash
2. By purchasing the interest in partnership from existing partners of the firm
3. By paying the bonus for the goodwill of the firm
4. By receiving the bonus for goodwill

To prepare:

The journal entry for purchase of the partner's interest