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, $68,000; Benson, $104,000; and Lau, $178,000. 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) $116,667; (b) $85,167; and (c) $152,834. (Do not round your intermediate calculations.)

Answer 1

	Event	Account titles and Explanation			Debit	Credit
	(a)	Cash		(Note:1)	116667
		Rhode's Capital				116667
		(Admission of Rhodes)
	(b)	Cash		(Note:2)	85167
		Meir's Capital			4725
		Benson's Capital			7087.5
		Lau's Capital			11812.5
		Rhode's Capital				108792
		(Admission of Rhodes)
	©	Cash		(Note:3)	152834
		Meir's Capital				5425.1
		Benson's Capital				8137.65
		Lau's Capital				13562.75
		Rhode's Capital				125708.5
		(Admission of Rhodes)
	Note:
	1. Rhodo invests $ 116667
	Total capital balance:
	Meir			68000
	Benson			104000
	Lau			178000
	Rhode			116667
	Total			466667
	Stake of Rhode=466667*25%=$ 116667
	Cash paid by Rhode=$ 116667
	Hence, No bonus
	2. Rhodo invests $ 85167
	Total capital balance:
	Meir			68000
	Benson			104000
	Lau			178000
	Rhode			85167
	Total			435167
	Stake of Rhode=435167*25%=$ 108792
	Cash paid by Rhode=$ 85167
	Hence, bonus available to New partner=108792-85167=$ 23625
	Bonus is Paid by Old partner's at ther sharing ratio of 2:3:5
	Meir	23625*2/10	4725
	Benson	23625*3/10	7087.5
	Lau	23625*5/10	11812.5
	3. Rhodo invests $ 152834.
	Total capital balance:
	Meir			68000
	Benson			104000
	Lau			178000
	Rhode			152834
	Total			502834
	Stake of Rhode=502834*25%=$ 125708.50
	Cash paid by Rhode=$ 152834
	Hence, bonus paid to Old partners=152834-125708.50=$ 27125.5
	Bonus is Paid to Old partner's at ther sharing ratio of 2:3:5
	Meir	27125.5*2/10	5425.1
	Benson	27125.5*3/10	8137.65
	Lau	27125.5*5/10	13562.75