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.)

Answer 1

Answer

(a) $133,333; Record the admission of Rhode with an investment of $133,333 for a 25% interest in the equity.

Particulars	Dr	Cr
Cash A/c	$133333
Rhode's Capital A/c		$133333

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.

Particulars	Dr	Cr
Cash A/c	$97,333
Meir Capital A/c(27000*1/10)	$2700
Benson Capital A/c(27000*4/10)	$10800
Lau Capital A/c(27000*5/10)	$13500
Rhode's Capital A/c		$124,333

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.

Particulars	Dr	Cr
Cash A/c	$174666
Meir Capital A/c(31000*1/10)		$3100
Benson Capital A/c(31000*4/10)		$12400
Lau Capital A/c (31000*5/10)		$15500
Rhode's Capital A/c		$143,666

400000+174666=574666

574666*25/100=143666

Bonus =174666-143666 = $31000

Thus old partners receives a bonus of $ 31000