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Arun and Margot want to admit Tammy as a third partner for their partnership. Their capital balances prior to Tammy’s admission are $50,000 each. Prepare a schedule showing how the bonus should be divided among the three, assuming the profit or loss agreement will be 1:3 once Tammy has been admitted and her contribution is: A. $20,000 B. $80,000 C. $50,000. In addition, show the resulting journal entries to each of the three partners’ capital accounts.

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Principles of Accounting Volume 1

19th Edition
OpenStax
Publisher: OpenStax College
ISBN: 9781947172685

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FindFindarrow_forward

Principles of Accounting Volume 1

19th Edition
OpenStax
Publisher: OpenStax College
ISBN: 9781947172685
Chapter 15, Problem 2PA
Textbook Problem
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Arun and Margot want to admit Tammy as a third partner for their partnership. Their capital balances prior to Tammy’s admission are $50,000 each. Prepare a schedule showing how the bonus should be divided among the three, assuming the profit or loss agreement will be 1:3 once Tammy has been admitted and her contribution is:

A. $20,000

B. $80,000

C. $50,000.

In addition, show the resulting journal entries to each of the three partners’ capital accounts.

To determine

Introduction:

If a new partner is introduced to an old partnership, a new capital account must be opened for new partner to reflect the new member of the partnership.

To prepare:

Journal entries and schedules.

Explanation of Solution

A bonus should be divided as shown in below schedule among the partners on the admission of a new partner:

Investment of the new partner is not given in the question so applying hit & trial method to show the bonus to the partners considering option C: $80,000

Schedule

Particulars Amounts
Total capital (2×$50000) Investment by new partner (T) Total capital of new partnership Tammy’s capital credit(1/3 of $1,80,000) Total Bonus to A&M $1,00,000 $80,000 $1,80,000 $60,000 $30,000

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Chapter 15 Solutions

Principles of Accounting Volume 1
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