Meir, Benson, and Lau are partners and share income and loss in a 1:4:5 ratio. T
ID: 2508298 • Letter: M
Question
Meir, Benson, and Lau are partners and share income and loss in a 1:4:5 ratio. The partnership's capital balances are as follows: Meir, $38,000; Benson, $159,000; and Lau, $203,000. 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 Rhode’s entry into the partnership under each of the following separate assumptions:
Rhode invests
(a) $133,333; Record the admission of Rhode with an investment of $133,333 for a 25% interest in the equity.
(b) $97,333; Record the admission of Rhode with an investment of $97,333 for a 25% interest in the equity.
c) $174,666.; Record the admission of Rhode with an investment of $174,666 for a 25% interest in the equity. (Do not round your intermediate calculations.)
Explanation / Answer
Answer
(a) $133,333; Record the admission of Rhode with an investment of $133,333 for a 25% interest in the equity.
Total Capital : 38000+159000+203000= 400000
Capital + Rhode investment =400000+133333=533333*25/100=133333
Thus no bonus is paid
(b) $97,333; Record the admission of Rhode with an investment of $97,333 for a 25% interest in the equity.
400000+97333=497333
497333*25/100=124333
Bonus =124333-97333 =27000
Thus a bonus $27000 is paid to new partner
c) $174,666.; Record the admission of Rhode with an investment of $174,666 for a 25% interest in the equity.
400000+174666=574666
574666*25/100=143666
Bonus =174666-143666 = $31000
Thus old partners receives a bonus of $ 31000
Particulars Dr Cr Cash A/c $133333 Rhode's Capital A/c $133333