The representation of the partners in the capital of the firm shall be Howe, 8/20; Mason, 5/20; Bartlett, 3/20; Gray, 4/20.
Profits and losses shall be shared according to the capital representation of the partners as at the time of formation of this partnership. In the event of the death of a partner an accounting shall be made at the close of the fiscal year in which the death occurs and the value of the deceased partner’s estate determined as of the date of his death by prorating profits on a monthly basis.
Gray is to pay for one-fifth interest in the capital of the firm by giving the firm his note for $2,000 and $4,000 in cash. The difference in capital is to be supplied by good-will, which is to be distributed among the three partners constituting the firm of Howe & Mason on the basis of their original capital representations in that firm, i.e., in the ratio of $8,000, $4,000, $6,000 respectively.
After adjustments have been made, the respective partners’ drawing accounts shall be settled in cash.
(a) Write the necessary journal entries to admit Gray as a partner and to adjust the several partners’ capital and drawing accounts.
(b) Set up the capital and drawing accounts of all the partners.
Instructions
The partnership agreement is to be interpreted to mean that, after distribution of the good-will, Howe, Mason, and Bartlett are to contribute or withdraw cash necessary to give them the respective capital shares agreed upon for the new firm.
VI
Wm. R. Gray died November 30, 1917, two years and five months after he became a partner in the firm of Howe, Mason & Co. As provided in the articles of partnership, the business continued until the end of the fiscal year, June 30, 1918, at which date an accounting was made on the basis of the following trial balance and subjoined data.