Changes in Partnership Membership

A partnership may change members from time to time. A partner may die or withdraw. Or, a new partner may be added to the partnership, possibly bringing cash. When the membership of the partnership changes, the partnership is dissolved, a new agreement will be created. A partnership can change even while the business continues.

1. New partner comes in by purchasing part or all of an existing partner's interest. (Payment is to the partner, not the partnership.)

a. In the ABC partnership, capital balances are Able 30,000, Baker 25,000 and Coble 20,000. The partners share profits equally. Donald is admitted to the partnership by purchasing 1/2 of Coble's interest for $12,000. Journalize Donald's admission to the partnership. Note: The partner is receiving the cash, not the partnership.

b. Capital balances in DEB are Denny $40,000, Evers $30,000 and Bailey $28,000. Denny and Evers each agree to pay Bailey $15,000 from their personal assets, each acquiring 50% of Bailey's equity. The partners share profits equally. Journalize the withdrawal of Bailey. Note: Bailey receives the payment, not the partnership.

2. New partner comes in by payment of cash to the partnership for an interest.

a. In the EZ Company, capital balances are Ellis $40,000 and Zale $30,000. The partners share income equally. Kale is admitted to the partnership with an investment of $42,000 cash for 40% interest. Journalize the admission of Kale.

b. Kent and Miles share income on a 6:4 basis. They have capital balances of $90,000 and $70000 respectively. Loyal is admitted to the partnership with an investment of $80,000 cash for a 25% ownership interest with bonuses to the existing partners.

c. Kent and Miles share income on a 6:4 basis. They have capital balances of $90,000 and $70000 respectively. Loyal invests $36,000 for a 25% interest with bonus to the new partner.

3. Partner is paid cash from the partnership to withdraw.

a. Capital balances for DEB Company are Denny $40,000, Evers $30,000 and Bailey $28,000. Bailey is paid $32,000 from partnership assets to withdraw from the firm. The partners share income equally.

b. Rice, White and Peat have capital balances of 95,000, 75,000, and 60,000 respectively and share profits on a 5:3:2 basis. White is paid $82,000 to withdraw from the partnership, with a bonus to the retiring partner.

c. Rice, White and Peat have capital balances of 95,000, 75,000, and 60,000 respectively and share profits on a 5:3:2 basis. White is paid $68,000 to withdraw from the partnership, with a bonus to the continuing partners..