Question

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.a. Determine the recipient and amount of the partner bonus.b. Provide the journal entry to admit Solano into the partnership. For a compound transaction, if an amount box does not require an entry, leave it blank.c. Why would a bonus be paid in this situation? Apparently, Jenkins and Tanner value offered by Solano.

Answer 1

In this partnership, the recipient of the partner bonus is Jenkins and Tanner, and the amount of the bonus is $109,200. The journal entry to admit Solano into the partnership is to debit cash for $32,000 and credit Cody Jenkins, Capital for $23,800 and Lacey Tanner, Capital for $13,200. A bonus is paid because Jenkins and Tanner value Solano's skills and expertise.

Step-by-step explanation:

a. To determine the recipient and amount of the partner bonus, we need to calculate the total capital and divide it by the total interest percentages. The total capital is the sum of the capital accounts of all partners, which is $78,000 + $46,000 + $32,000 = $156,000. Therefore, the recipient of the partner bonus is Jenkins and Tanner, and the amount of the bonus is:

Bonus = Total Capital x Interest Percentage = $156,000 x (1 - 0.30) = $156,000 x 0.70 = $109,200.

b. The journal entry to admit Solano into the partnership is:

Debit: Cash $32,000

Credit: Cody Jenkins, Capital $23,800

Credit: Lacey Tanner, Capital $13,200

c. A bonus is paid in this situation because Jenkins and Tanner value the skills and expertise offered by Solano. They believe that Solano's contribution will enhance the profitability and success of the partnership, thus they are willing to share a portion of their capital and profits with Solano.

Answer 2

Answer:a. The bonus is -14,800 allocated to the partner in proportion to their profit share ratio partner bonus Cody Jenkin -10,360, Lacy Tanner -4,440 (b) Dr: cash $32,000, Cr : capital valerio Solano $46,800,Dr: capital Cody Jenkin $10,360,Dr: capital Lacey Tanner $4,440, Total Dr :$46,800, Cr: $46,800 (c) because the purchase price is less than the book value of the percentage of the partnership purchase, valerio Solano purchase price is $32,000 but he was allocated a capital of $46,800

Step-by-step explanation:

Existing partner capital = ($78,000 +$46,000) =$124,000

New partner investment = $32,000

Paid in capital = ($124,000 + $32,000) =$156,000

New capital Account

The new partner purchase price in return for 30% share of the partnership. The capital is calculated as follows

Paid in capital = $156,000

New partner share = 30%

New partner capital = 30 % × 156,000 = (0.3 × 156,000 ) = $46,800

Bonus Calculation

New partner purchase price = $32,000

New partner capital =$46,800

Bonus = 32,000 - 46,800 = -14,800

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

Profit sharing ratio Cody Jenkins : Lacey Tanner = 70:30

Partner Cody jenkins and Lacey Tanner bonus share = 70% × -14,800 = (0.7 × -14,800) =

-10,360

Partner Valerio Solano bonus share = 30% × -14,800 (0.3 × -14,800) = -4,440

The bonus share is a negative amount because the new partner purchase price is less than the capital allocated. The existing partner must absorb the bonus allocated as capital to the new partner.

Bonus Journal entry after the admission of new partner will be

Account. Debit. Credit

$ $

Cash. 32,000

Capital: valerio Solano 46,800

Capital: Cody Jenkins. 10,360

Capital: Lacey Tanner 4,440

------------ ------------

Total. 46,800 46,800

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The new partner purchase price is $32,000 and receives a capital allocation of $46,800 equal to 30% of the paid in capital of the partnership. The difference $4,440 is treated as bonus and allocated to the existing partners in proportion to their profit share with Cody Jenkin $10,360 and Lacey Tanner $4,440

(c) because the purchase price is less than the book value of the percentage of the partnership purchase, valerio Solano purchase price was $32,000 but he was allocated a capital of $46,800