Accounting for the admission of a new partner
Hayley Hollis is admitted to the partnership of Rose & Novak. Prior to her admission, the partnership books show Greta Roseâ€™s capital balance at $170,000 and Chris Novakâ€™s at $85,000. Assume Rose and Novak share profits and losses equally.
1. Compute each partnerâ€™s equity on the books of the new partnership under the following plans:
a. Hollis pays $95,000 for Novakâ€™s equity. Hollis pays Novak directly.
b. Hollis contributes $85,000 to acquire a 1/4 interest in the partnership.
c. Hollis contributes $105,000 to acquire a 1/4 interest in the partnership.
2. Journalize the entries for admitting the new partner under plans a, b, and c.