Meir, Benson, and Lau are partners and share income and loss in a 2:3:5 ratio. T
ID: 2432734 • Letter: M
Question
Meir, Benson, and Lau are partners and share income and loss in a 2:3:5 ratio. The partnership's capital balances are as follows: Meir, $58,000; Benson, $89,000; and Lau, $153,000. Benson decides to withdraw from the partnership, and the partners agree not to have the assets revalued upon Benson's retirement.
Assume that Benson does not retire from the partnership described in Part 1. Instead, Rhode is admitted to the partnership on February 1 with a 25% equity. Prepare journal entries to record Rhodes entry into the partnership under each of the following separate assumptions: Rhode invests (a) $100,000; (b) $73,000; and (c) $131,000. (Do not round your intermediate calculations.)Explanation / Answer
Solution a:
Ratio of profit between Meir, Benson and Lau = 2:3:5
Total capital after new capital introduced by Rhode = $58,000 + $89,000 + $153,000 + $100,000 = $400,000
Rhode share in Partnership = 25%
Therefore required share of capital by Rhode = 400000 * 25% = $100,000
As capital introduced by Rhode is same as required capital, therefore there will be no bonus to be given to existing/new partner.
Solution a:
Ratio of profit between Meir, Benson and Lau = 2:3:5
Total capital after new capital introduced by Rhode = $58,000 + $89,000 + $153,000 + $73,000 = $373,000
Rhode share in Partnership = 25%
Therefore required share of capital by Rhode = 373,000 * 25% = $93,250
As capital introduced by Rhode is lesser by $20,250 therefore old partner capital share will be given to Rhode in their profit sharing ratio i.e. 2:3:5
Solution c:
Ratio of profit between Meir, Benson and Lau = 2:3:5
Total capital after new capital introduced by Rhode = $58,000 + $89,000 + $153,000 + $131,000 = $431,000
Rhode share in Partnership = 25%
Therefore required share of capital by Rhode = 431,000 * 25% = $107,750
Bonus Capital introduced by Rhode = $131,000 - $107,750 = $23,250
Bonus capital will be distributed in existing partner in ratio of 2:3:5
Journal Entries Transaction Particulars Debit Credit c Cash Dr $131,000.00 To Meir, Capital $4,650.00 To Benson, Capital $6,975.00 To Lau, Capital $11,625.00 To Rhode, Capital $107,750.00 (To record capital invested by new partner)