Question

Admitting New Partner With Bonus Cody Jenkins and Lacey Tanner formed a partnership to provide landscaping services. Jenkins and Tanner shared profits and losses equally. After all the tangible assets have been adjusted to current market prices, the capital accounts of Cody Jenkins and Lacey Tanner have balances of $78,000 and $46,000, respectively. Valeria Solano has expertise with using the computer to prepare landscape designs, cost estimates, and renderings. Jenkins and Tanner deem these skills useful; thus, Solano is admitted to the partnership at a 30% interest for a purchase price of $32,000.

Required:
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?

Answer 1

a)

Cody Jenkins, capital $78,000

Lacey Tanner, capital $46,000

Solano’s contribution $32,000

Total partners’ capital after admitting Solano $156,000

Solano’s equity interest after admission $156,000 x 30% = $46,800

Bonus paid to Solano $46,800 - $32,000 = $14,800

b)

Dr Cash 32,000

Dr Cody Jenkins, capital 7,400

Dr Lacey Tanner, capital 7,400

Cr Valeria Solano, capital 46,800

c) Probably Solano's expertise is required by Cody and Tracy. Her contribution will help the partnership grow or earn higher profits.