Cody Jenkins and Lacey Tanner formed a partnership to provide landscaping servic
ID: 2400391 • Letter: C
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 $45,000 and $59,000, 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 $28,000. 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.Explanation / Answer
Solution a:
Ratio of profit between cody and Lacey = 1:1
Total capital after new capital introduced by Solano = $45,000 + $59,000 + $28,000 = $132,000
Solano share in Partnership = 30%
Therefore required share of capital by Solano = 132000 * 30% = $39,600
As capital introduced by Solano is lesser by $39,500 therefore old partner capital share will be given to Solano in their profit sharing ratio i.e. 1:1
Therefore amount of partner bonus = $39,600 - $28,000 = $11,600
Recipient = Solano
Solution b:
Solution c:
Bonus is paid in this transaction because capital contribution offered by Solano is lesser than equivalant contribution of Jenkins and tanners with respect to their partnership interest.
Journal Entries Event Particulars Debit Credit a Cash Dr $28,000.00 Jenkins Capital Dr $5,800.00 Tanner's Capital Dr $5,800.00 To Solano's Capital $39,600.00 (To record solano admission in partnership)