Question

EX 12-13 Admitting new partner with bonus Andrew Hall and Brian Li formed a partnership to provide landscaping services. Hall and Li shared profits and losses equally. After all the tangible assets have been adjusted to current market prices, the capital accounts of Andrew Hall and Brian Li have balances of $54,000 and $71,000, respectively. Kristin Lane has expertise with using the computer to prepare landscape designs, cost estimates, and renderings. Hall and Li deem these skills useful; thus, Lane is admitted to the partnership at a 30% interest for a purchase price of $35,000. a. Determine the recipient and amount of the partner bonus b. Provide the journal entry to admit Lane into the partnership. c. Why would a bonus be paid in this situation?

Answer 1

Subject Solution - a. The Receipient Kristin lane will get 30% of share - Partners Bonus will be shared into their Capital proportion ie 54:71 Bonus of Andrew Hall 7 $35000 6 125 = $15, 120 Bonus of Brian Li - - > $35000x71 = $ 19,880 125 Journal entries on admission of lane into partnership i Cash AlC pr $35000 - To purchase of G/W ALL $35000 (Being money Received from Lane against profit sharing) mig Purchase of G/w Alcor $35000 To Andrew hall's Cap. ALC $ 15,120 e To Brian li's cap. Ac $19,880 € (Being amount distributed in old partners - in old Capital proportion) c. In the Giren situation a bonus should be paid to partners because Lane admitted into business and he will get share in profit so old partners sacrificing propet share a do they will get Bonus.