 Hello, in this lecture we're going to talk about partnerships and we're going to talk about the selling of a partnership interest. We will be able to describe the process of selling a partnership interest, create the journal entry to record the sale of a partnership interest, define the effect of journal entry to sell a partnership interest on the trial balance accounts, and explain the effect on the capital accounts of selling a partnership interest. All right, so now we're going to do the same thing, however, this time we're going to have B sales to capital partnership interest to the partnership, however, they're only going to pay $50,000 this time. So same idea, except the exchange will be the $50,000. So is cash affected? Yeah, it's going to go down by the $50,000 in this case. So if we take a look at that, then let's go through the journal entry, see what we can do, where we run into a problem, then do the calculations. So cash, is cash affected? Yeah, it's going down. The partnerships paying B for the partnership interest. Cash has a debit balance. We're going to do the opposite thing to it, which in this case would be a credit. We're going to take B off the books. B has a credit balance in the capital account. We need to make it go down. Therefore, we're going to do the opposite thing to it, which in this case would be a debit. Now the debits do not equal the credits. We need more credits in this case, and the credits are going to go to M and L, the other two partners. And we're going to have to figure out how to break it out between those two partners. Remember, we have our ratios here. So we have M30, 20, and 50%, broken out between a 3 to 5 ratio. And we have our capital account balances represent at 151.2, 124.2, and 264.6, which are represented in the trial balance up here. If we're then going to break out our ratio, then it's going to be looking like this. One calculation we did last time, if we're saying 3, and the 2 is gone now, so we're dividing by 3 plus 5, so divided by 8, so that's where we come up with the 37.5, and the 5 over divided by 8, which is the 3 plus the 5 because the 2 is gone. That's where we get the 62.5. And so now then, we have our difference of 74.2. Where does the 74.2 come from? We, B is going off the books at 124.2, and cash is going to be affected by 50. And that's the 74.2. If we multiply that times, the 0.375, 0.375. That's what's going to give us the 278.25, which is going to be allocated to M. And of course, L will receive the difference. Let's do that calculation, however. Which is the 74.200 times the 0.625, and that gives us the 46.375. So that's how we're going to break out this 74.200. That's the plug that we need up here. So our new capital account balances then would be the 179.25, which of course is the beginning balance plus the 278.25, and the 264.600 plus the 46.375, giving us the 310.975, which will give us a total capital account balance of 490. So if we see that in terms of journal entry, we're going to credit or increase the capital account balance for M, 278.25, and we're going to credit L, the 46.375. All right, so if we take a look at the effect of this transaction on the trial balance then, we'll see if it does what we expect it to do. What do we expect it to do? We expect M's capital account balance to end at 179.025 B to be off the books because we have now sold B's partnership and they're not with us anymore. And then L's going to be at a capital account balance of 310.975, giving us a total capital account balance, which is equivalent to the book value of the company, assets minus liabilities of 490,000. All right, so we're going to debit B's capital account. So here's B again on the books at 427.2, has a credit balance, we're doing the opposite thing to it. We're going to be off the books by debiting it, bringing the balance down to 0, so B is off the books. Cash, cash is being paid by the partnership to the partner of B in order to buy B's capital account interest. Therefore, cash is a debit balance, we're making it go down by doing the opposite thing to it, which is a credit, bringing it down from 550 to 500. Then M, M has a credit here, so here is M, credit balance in the capital accounts like all capital accounts have, and we are going to credit it, making it go up because we're doing the same thing to it from 151 to 100 by 278.25 to 179.025. And then L, we're going to credit L, so here's L's capital account balance, has a credit balance in it. We are going to credit it, bringing it up to 310.975. We now have B off the books, we have M and L on the books, and we see that the cash minus or the assets minus the liabilities equals the new capital account balances between the only two partners left being M and L at this time. So we are now able to describe the process of selling a partnership interest, create the journal entries to record the sale of a partnership interest, define the effect of the journal entry to sell a partnership interest on the trial balance accounts, and explain the effect on the capital accounts of selling a partnership interest.