EX 1212 Admitting new partner with bonus Cody Jenkins and La

EX 12-12 Admitting new partner with bonus Cody Jenkins and Lacey Tanner formed a partnership to provide landscain Jenkins and Tanner shared profits and losses equally. After all the tangibie and La been adjusted to current market prices, the capital accounts of Cody Jenk as expetir Tanner have balances of $78,000 and $46,000, respectively. Valeria Solano with using the computer to prepare landscape designs, cost estimates, ae nt Jenkins and Tanner deem these skills useful; thus, Solano is admitted to the at a 30% interest for a purchase price of $32,000. and renderni a. Determine the recipient and amount of the partner bonus b. Provide the journal entry to admit Solano into the partnership. c. Why would a bonus be paid in this situation?

Solution

a. Determination of Recipient of Bonus and amount of partner bonus:-

Partnership capital calculation

The partnership capital after the admission of a new partner is calculated as follows:-

Solano capital account

The new partner (Solano) invested in return for a 30% share of the partnership.

The new partners capital is calculated as follows.

Bonus calculation

The partner invested 32,000 in return for a capital allocation of 46,800. The difference of 14,800 is treated as a bonus, calculated as follows.

The bonus is allocated to the existing partners in proportion to their profit share ratio.

As the new partner invested less than the book value, so bonus amount is negative and it will be adjusted in old partners\' capital accounts.

So, Recipient of Bonus is Solano and amount of bonus = $14,800

b. Journal entry on admission:-

Cash Dr. $ 32,000

Jenkins\'s Capital A/c Dr. $ 7,400

Tanner\'s Capital A/c Dr. $ 7,400

To Solano\'s Capital A/c $ 46,800

c. A Bonus would be paid to Solano because of his expertise skills of using computer in making landscape designs, cost estimates and renderings which will be useful to firm\'s business.