Question

Cody Jenkins and Lacey Tanner formed a partnership to provide landscaping services. Jenkins and Tanner shared profits and losses equally. After all the tangible assets have been adjusted to current market prices, the capital accounts of Cody Jenkins and Lacey Tanner have balances of $32,000 and $42,000, respectively. Valeria Solano has expertise with using the computer to prepare landscape designs, cost estimates, and renderings. Jenkins and Tanner deem these skills useful; thus, Solano is admitted to the partnership at a 30% interest for a purchase price of $20,000.

a. Determine the recipient and amount of the partner bonus.
$  

b. Provide the journal entry to admit Solano into the partnership. For a compound transaction, if an amount box does not require an entry, leave it blank.

c. Why would a bonus be paid in this situation?

Apparently, Jenkins and Tanner value   offered by Solano.

Answer 1

Solution a:

Ratio of profit between Jenkin and Tanner = 1:1

Total capital after new capital introduced by Solano = $74,000 + $20,000 = $94,000

Solano share in Partnership = 30%

Therefore required share of capital by Solano = 94000 * 30% = $28,200

Capital invested by Solano = $20,000

Therefore recipient of partner bonus is Solano and amount of partner bonus = $28,200 - $20,000 = $8,200

Solution b:

Journal Entries
Event	Particulars	Debit	Credit
1	Cash Dr	$20,000.00
	Jenkin's capital Dr	$4,100.00
	Tanner's capital Dr	$4,100.00
	To Solano's capital		$28,200.00
	(To record admission of new partner)

Solution c:

Bonus is paid in this situation because, Apparently, Jenkins and Tanner value lesser offered by Solano.