PE 12-3B Revaluing and contributing assets to a partnership

Naseef Asad invested $75,000 in the Lionel and Morehouse partnership for ownership equity of $75,000. Prior to the investment, equipment was revalued to a market value of $57,000 from a book value of $33,000. Justin Lionel and Courtney Morehouse share net income in a 2:1 ratio.

a. Provide the journal entry for the revaluation of equipment.
b. Provide the journal entry to admit Asad.

Answer:
a.
Equipment........................................ 24,000
             Justin Lionel, Capital .......................... 16,000*
             Courtney Morehouse, Capital......................  8,000  
*($57,000 – $33,000) × 2/3

b.
Cash.............................................. 75,000
            Naseef Asad, Capital.............................. 75,000

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