Question

Meir, Benson, and Lau are partners and share income and loss in a 2:3:5 ratio (in percents: Meir, 20%; Benson, 30%; and Lau, 50%). The partnership's capital balances are as follows: Meir, $48,000; Benson, $74,000; and Lau, $128,000. Benson decides to withdraw from the partnership.

2. 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 separate assumption: Rhode invests (a) $83,333; (b) $60,833; and (c) $109,166. (Do not round your intermediate calculations.)

Answer 1

Part 2

a)

Feb.  1	Cash.......................................................................................	83333.25
	Rhodes, Capital*.............................................................		83333.25
	To record admission of Rhodes.
	*Supporting calculations
	$48000 + $74000 + $128000 = $250000
	($250000 + $83333) x 25% = $83333.25
	Thus, no bonus is received or granted.

b)

Feb.  1	Cash.......................................................................................	60833
	Meir, Capital ($16875.25* x 2/10)............................................	3375.05
	Benson, Capital ($16875.25* x 3/10)........................................	5062.575
	Lau, Capital ($16875.25* x 5/10).............................................	8437.625
	Rhodes, Capital...............................................................		77708.25
	To record Rhode's admission and bonus.
	* Supporting calculations
	($250000 + $60833) x 25% = $77708.25
	$60833 - $77708.25 = $(16875.25)
	Thus, the new partner receives a bonus.

c)

Feb.  1	Cash.......................................................................................	109166
	Meir, Capital ($19374.50* x 2/10)......................................		3874.90
	Benson, Capital ($19374.50* x 3/10)..................................		5812.35
	Lau, Capital ($19374.50* x 5/10).......................................		9687.25
	Rhodes, Capital...............................................................		89791.50
	To record admission of Rhodes and bonus to old partners.
	* Supporting calculations
	($250000 + $109166) x 25% = $89791.50
	$109166 - $89791.50 = $19374.50
	Thus, the old partners receive a bonus.