Final answer:
To reflect Sergio's investment in the business with the bonus method, the existing partners' capital accounts are adjusted, distributing the $130,000 bonus among them according to their profit and loss ratios after recording his $100,000 cash contribution.
Step-by-step explanation:
When Sergio invests $100,000 in cash in the business for a 20 percent interest using the bonus method, the existing capital accounts must be adjusted to reflect the new partner's admission. Since the total capital before Sergio's investment is $270,000 (Tiger's $105,000 + Phil's $75,000 + Ernie's $90,000), and Sergio buys 20 percent, the implied total capital should be $500,000 ($100,000 / 0.20). But because he only contributes $100,000 for a 20 percent interest, the excess ($500,000 - $370,000 = $130,000) is a bonus to the existing partners, which is distributed according to their profit and loss ratios (50% for Tiger, 20% for Phil, and 30% for Ernie).
The journal entry required to record Sergio's investment will debit the Cash account and credit the individual Capital accounts of the existing partners according to the bonus distributed and add a credit to Sergio's new Capital account. This adjustment reflects the additional contribution made by the existing partners through relinquishing a part of their equity in Sergio's favor.