III
Joseph Mason was Howe’s greatest competitor. After getting better acquainted with each other, Howe conceived the plan of uniting their capital and services in the form of a partnership. After some discussion it was decided to operate as Howe & Mason, the capital to consist of $12,000, of which Howe is to contribute $8,000 in the form of his existing business. The excess of Howe’s net worth, as shown by the balance sheet of June 30, 1914, over $8,000, his investment in the partnership, is to be considered as a loan to the firm. Mason is to transfer his entire business—assets and liabilities—and sufficient cash to make his net investment $4,000, or one-third of the total capitalization.
As of July 1, 1914, the date of the formation of the partnership, Mason’s assets and liabilities were as follows: cash $1,340; accounts receivable $2,460; notes receivable $1,120; stock of goods inventoried at $4,590; furniture and fixtures appraised at $1,316; accounts payable $5,280; notes payable $1,770; rent unpaid $320.
Prepare journal entries to give effect to the foregoing on Howe’s books, which are to be continued for the partnership.
During the year Charles Palmer purchased one-third interest in the capital and profits of the firm by contributing $9,000 in cash. The total capital of the new firm is set at $18,000. Business is to be conducted under the old firm name, the old partners retaining their respective capital investments. Howe’s loan account is to be continued at its original amount.
Write the necessary journal entries to record on the books of the firm the admission of the new partner and the adjustments between Howe and Mason.
Before determining the profits for the year Palmer assigns his interest in the capital and profits of the firm to John H. Bartlett, who settles directly with Palmer for $10,000. Howe and Mason agree to admit Bartlett as a partner in place of Palmer and new articles of partnership are signed by the members.
Give journal entries to show the effect on the partnership books.
Instructions
Note carefully the terms under which Palmer is admitted. His capital will appear on the books as $6,000. Make the adjustment through a good-will account. Howe and Mason withdraw cash to effect their respective adjustments.