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; (b) $97,333; and (c) $174,666. (Do not round your intermediate calculations.) a.Record the admission of Rhode with an investment of $133,333 for a 25% interest in the equity. b.Record the admission of Rhode with an investment of $97,333 for a 25% interest in the equity. c.Record the admission of Rhode with an investment of $174,666 for a 25% interest in the equity.

Answer 1

JOURNAL ENTRY FOR ADMISSION OF NEW PARTNER (BONUS METHOD)

a) Rhodes invest $133,333

Feb 1. Cash A/C DR. $133,333

To Rhode's Capital A/C $133,333

working note:

Total Capital of old partners: $38000 + $159000 + $203000 = $400,000

New capital after admission : $400,000 + $133,333 = $533,333

Rhode's share : $533,333 * 25 % = $ 133,333.25

Rhods's brought $ 133,333, hence no bonus is to be received or paid.

b) Rhodes invests  $97,333

Feb 1. Cash A/C Dr. $97,333

Meir's Capital A/C Dr. $ 2700.02

Benson's Capital A/C Dr. $10800.10

Lau's Capital A/C Dr. $13500.13

To Rhode's Capital A/C $124333.25

working note:

New capital after admission : $400,000 + $97,333 = $497,333

Rhode's share $497,333 * 25 % = $ 124,333.25

Rhode' s brought in only $97,333. Difference = 97,333 - 124,333.25 = ($27000.25)

Hence, $ 27000.25 bonus to be received by Rhode.

Meir Capital = 27000.25 * 1/10 = $2700.02

Benson Capital = 27000.25 * 4/10 = $10,800.10

Lau Capital = 27000.25 * 5/10 = $13,500.13

c) Rhode invest $174,666

Feb 1. Cash A/C Dr. $174,666

To Meir's Capital $3099.95

To Benson's Capital $12,399.8

To Lau's Capital $15,449.75

To Rhode's Capital $143,666.50

working note

New Capital after admission : $400,000 + $174,666 = $574,666

Rhode' share $574,666 * 25 % = $143,666.50

Rhode Brought $ 174,666. Difference $ 174,666 - $ 143,666.50 = $ 30,999.5

Hence, a bonus is received by old partners in their income and loss ratio as follows.

Mier capital = 30,999.5 * 1/10 = $3099.95

Benson's Capital = 30,999.5 * 4/10 = $12,399.80

Lau's Capital = 30,999.5 * 5/10 = $15,499.75