Watson Purchased One-Half of Dalton's Interest in the Patton and Dalton

question 205

Essay

Watson purchased one-half of Dalton's interest in the Patton and Dalton Partnership for $45,000. Prior to the investment, land was revalued to a market value of $135,000 from a book value of $93,000. Patton and Dalton share net income equally. Dalton had a capital balance of $35,000 prior to these transactions.​Required
(a) Provide the journal entry for the revaluation of land.
(b) Provide the journal entry to admit Watson.

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Definitions:

Capital Balance

The amount of money that a partner in a business has contributed to the business minus any withdrawals or distributions.

Bonus Method

The bonus method is an accounting approach used in partnership transactions to reflect changes in the capital accounts of the partners when no actual cash is paid out or received.

Capital Balances

Refers to the amount of capital reported on the balance sheet, including funds contributed by owners or shareholders plus retained earnings.

Fair Value

An estimate of the price at which an asset or liability could be traded in a fair transaction between willing parties.