Final answer:
Jay's investment in the partnership using the bonus method results in a bonus distributed to the existing partners, Paul and Mark, which increases their capital balances. The total capital after Jay's admission is $195,000, and goodwill is not separately recorded but is included in the bonus to the existing partners.
Step-by-step explanation:
To determine the new balances after Jay joins the partnership using the bonus method, we need to calculate how the investment affects the existing partners and how goodwill is treated. When Jay invests $65,000 for a one-third ownership, it implies that the total value of the partnership should be $195,000 (since $65,000 is one-third of that amount). However, Paul and Mark's combined capital accounts total only $110,000 ($50,000 + $60,000) prior to Jay's investment.
Under the bonus method, any excess amount paid by the new partner over the amount credited to his capital account is allocated as a bonus to the existing partners based on their profit and loss sharing ratio. In this case, since Paul and Mark share profits equally, any bonus resulting from Jay's investment would be shared equally between them.
To calculate the actual bonus, subtract the existing partners' total capital ($110,000) from the total implied value after Jay joins ($195,000), which gives us $85,000. Since Paul and Mark share this bonus equally, they each receive $42,500. This raises their capital balances to $92,500 for Paul ($50,000 original + $42,500 bonus) and $102,500 for Mark ($60,000 original + $42,500 bonus).
Therefore, the correct answers would be:
- Jay's capital will not be $58,333; it is $65,000.
- Mark's capital will not be $70,000; it will be $102,500.
- Paul's capital will not be $46,667; it will be $92,500.
- Total capital will be $195,000 ($92,500 Paul + $102,500 Mark + $65,000 Jay).
- Goodwill will not be recorded at $15,000; in this case, goodwill is not separately recorded but is implicit in the bonus to the existing partners.