Question

Meir, Benson, and Lau are partners and share income and loss in a 2:3:5 ratio (in percents: Meir, 20%; Benson, 30%; and Lau, 50%). The partnership's capital balances are as follows: Meir, $88,000; Benson, $134,000; and Lau, $228,000. Benson decides to withdraw from the partnership.

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 separate assumption: Rhode invests (a) $150,000; (b) $109,500; and (c) $196,500. (Do not round your intermediate calculations.)

Record the admission of Rhode with an investment of $150,000 for a 25% interest in the equity.

Record the admission of Rhode with an investment of $109,500 for a 25% interest in the equity.

Record the admission of Rhode with an investment of $196,500 for a 25% interest in the equity.

Answer 1

Solution:

Journal Entries:

Transaction	General Journal	Debit	Credit
(a)	Cash	$          150,000
	Rhode Capital		$      150,000
	(Being new partner admission)
(b)	Cash	$          109,500
	Meir Capital (2/10)	$               6,075
	Benson Capital(3/10)	$               9,112
	Lau Capital (5/10)	$            15,188
	Rhode Capital		$      139,875
	(Being new partner admission)
(c)	Cash	$          196,500
	Meir Capital (2/10)		$           6,975
	Benson Capital(3/10)		$        10,462
	Lau Capital (5/10)		$        17,438
	Rhode Capital		$      161,625
	(Being new partner admission)

Working:

a) Rhode with an investment of $150,000 for a 25% interest in the equity.

Particular	Amount$
Capital Before admission	$        450,000.00
Add: Rhode capital (a)	$        150,000.00
Total Capital (b)	$        600,000.00
Rhode Share of Capital 25% (c =b*25%)	$        150,000.00
Bonus (a-c)	$                          -

b) Rhode with an investment of $109,500 for a 25% interest in the equity.

Particular	Amount$
Capital Before admission	$      450,000.00
Add: Rhode capital (a)	$      109,500.00
Total Capital (b)	$      559,500.00
Rhode Share of Capital 25% (c =b*25%)	$      139,875.00
Bonus to Rhode by existing partners (2:3:5) (d=a-c)	$        30,375.00
Meir (2/10)*d	$          6,075.00
Benson(3/10)*d	$          9,112.50
Lau(5/10)*d	$        15,187.50
Total Bonus	$        30,375.00

c) Rhode with an investment of $196,500 for a 25% interest in the equity.

Particular	Amount$
Capital Before admission	$      450,000.00
Add: Rhode capital (a)	$      196,500.00
Total Capital (b)	$      646,500.00
Rhode Share of Capital 25% (c =b*25%)	$      161,625.00
Bonus to existing partners by rhode (2:3:5) (d=a-c)	$        34,875.00
Meir (2/10)*d	$          6,975.00
Benson(3/10)*d	$        10,462.50
Lau(5/10)*d	$        17,437.50
Total Bonus	$        34,875.00

4) Final Answer in journal entries are round off to nearest whole dollar amount.