Final answer:
The journal entry for Sergio's $180,000 investment in the partnership using the bonus method includes a debit to Cash and credits to Tiger's, Phil's, and Ernie's Capital accounts for their respective shares of the bonus based on the agreed profit and loss ratios.
Step-by-step explanation:
The journal entry to record Sergio's investment would be a debit to the Cash account by $180,000 and credits to the existing partners' capital accounts according to their respective share of the bonus. The bonus is the excess amount of cash received over the book value of the partnership interest purchased. To calculate the bonus, the new total capital is considered, subtracted by the pre-existing capital and the cash contributed by the new partner. Assuming a bonus method is used, the calculations and the respective entries would be made to reflect the new capital balances according to the ownership percentages of the existing and new partners.
First, we need to determine the total capital before Sergio's investment: Tiger's $150,000 + Phil's $120,000 + Ernie's $135,000 = $405,000. Sergio invests $180,000 for a 20% interest, so the new total capital should be $405,000 + $180,000 = $585,000. The value of the 20% interest should ideally be 20% of the old total capital which is $81,000 ($405,000 * 20%). However, Sergio is actually investing $180,000, which indicates a bonus of $180,000 - $81,000 = $99,000 to be shared among the old partners based on their profit and loss ratios.
The bonus to the existing partners is allocated as follows: Tiger (40% of $99,000) = $39,600, Phil (30% of $99,000) = $29,700, and Ernie (30% of $99,000) = $29,700. The journal entry would be to debit Cash $180,000, credit Tiger's Capital $39,600, credit Phil's Capital $29,700, and credit Ernie's Capital $29,700, which tallies with the cash investment that Sergio made.