Jack, King and Lee are in partnership sharing profits and losses equally. The p...
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Jack, King and Lee are in partnership sharing profits and losses equally. The position statement of the partnership as at 31 January 2023 is as follows:
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$
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$
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Fixed Assets
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180,000
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Current Assets:
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|
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Debtors
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40,000
|
|
Cash In Bank
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70,000
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110,000
|
|
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290,000
|
Capital:
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|
|
Jack
|
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100,000
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King
|
|
60,000
|
Lee
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40,000
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200,000
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Current Account:
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|
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Jack
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10,000
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King
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8,000
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|
Lee
|
2,000
|
20,000
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Current Liabilities
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70,000
|
|
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290,000
|
Lee decides to retire from the business on 1 February 2023, and Mat is admitted as a partner on that date. The following matters were agreed:
· Fixed assets were re-valued to $ 250,000
· Bad debts to be written off by an amount of $10,000
· Goodwill amounting to $90,000 is to be recorded in the books of the partnership on the day Lee retires. The partners in the new firm do not wish to maintain a goodwill account and the amount is to be written off against the new partners’ capital accounts.
· The balance in Lee’s capital and current accounts are to be settled in cash.
· The new profit-sharing ratio is to be 2:2:1 respectively for Jack, King and Mat.
· Mat is to contribute $58,000 in cash to the partnership.
· King is to make additional contribution of $6,000 cash to the partnership.
· Jack is to be paid $34,000 cash by the partnership
Required:
(a) Prepare journal entries in general journal form (without narrations) to record the changes in the partnership. (narrations not required) (20 marks)
(b) Prepare the capital accounts of the partners (in columnar form) to record the changes in the partnership. (5 marks)
(Total: 25 marks)
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