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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Admitting new partner with bonus

Cody Jenkins and Lacey Tanner formed a partnership to provide landscaping services. Jenkins and Tanner shared profits and losses equally. After all the tangible assets have been adjusted to current market prices, the capital accounts of Cody Jenkins and Lacey Tanner have balances of $78,000 and $46,000, respectively. Valeria Solano has expertise with using the computer to prepare landscape designs, cost estimates, and renderings. Jenkins and Tanner deem these skills useful; thus, Solano is admitted to the partnership at a 30% interest for a purchase price of $32,000.

  1. a. Determine the recipient and amount of the partner bonus.
  2. b. Provide the journal entry to admit Solano into the partnership.
  3. c. Why would a bonus be paid in this situation?

a.

To determine

Partnership

It is that form of organization which is owned and managed by two or more persons who invest and share the profits and losses according to a pre-determined ratio.

To determine:  The amount of partner bonus.

Explanation

The calculation of the partner’s bonus is as follows:

1. Capital balances of partner J and T after Revaluation-

J T Total

Capital balances

after revaluation

$78,000 $46,000 $124,000

Table (1)

2. Calculation of S’s equity @ 30%-

...
Total equity balance after revaluation (A) $124,000
Contributed by S (B) $32,000

b.

To determine

To record:  The journal entry for the admission of S

c.

To determine

To explain: The reason for which bonus is paid now.

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