Question

Required information Problem 12-5A Partner withdrawal and admission LO P3, P4 [The following information applies to the questions displayed below.] Meir, Benson, and Lau are partners and share income and loss in a 1:4:5 ratio (in percents: Meir, 10%; Benson, 40%; and Lau, 50%). The partnership's capital balances are as follows: Meir, $28,000; Benson, $119,000; and Lau, $153,000. Benson decides to withdraw from the partnership. Problem 12-5A Part 2 2. 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) $100,000; (b) $73,000; and (c) $131,000. (Do not round your intermediate calculations.)

Answer 1

Answer -

1.

Transaction	General Journal	Debit	Credit
(a)	Cash	$100000
	Rhode, capital		$100000

Calculation:

Total capital = Meir capital balance + Benson capital balance + Lau capital balance

= $28000 + $119000 + $153000

= $300000

As per given information,

Rhode invest of $100000 for 25% interest in the equity.

So,

Rhode, capital:

= New capital (after admission) * 25%

= (Total capital + Rhode investment in equity) * 25%

= ($300000 + $100000) * 25%

= $100000

Thus, no bonus is received or paid.

2.

Transaction	General Journal	Debit	Credit
(b)	Cash	$73000
	Meir, capital	$2025
	Benson, capital	$8100
	Lau, capital	$10125
	Rhode, capital		$93250

Calculation:

Total capital = Meir capital balance + Benson capital balance + Lau capital balance

= $28000 + $119000 + $153000

= $300000

As per given information,

Rhode invest of $73000 for 25% interest in the equity.

So,

Rhode, capital:

= New capital (after admission) * 25%

= (Total capital + Rhode investment in equity) * 25%

= ($300000 + $73000) * 25%

= $93250

Therefore,

= $93250 - $73000

= $20250 (difference)

Hence, $20250 bonus is paid to Rhode.

That bonus paid by Meir, Benson and Lau in income and loss sharing ratio 1:4:5

So,

Meir, capital = $20250 * (1/10) = $2025

Benson, capital = $20250 * (4/10) = $8100

Lau, capital = $20250 * (5/10) = $10125

3.

Transaction	General Journal	Debit	Credit
(c)	Cash	$131000
	Meir, capital		$2325
	Benson, capital		$9300
	Lau, capital		$11625
	Rhode, capital		$107750

Calculation:

Total capital = Meir capital balance + Benson capital balance + Lau capital balance

= $28000 + $119000 + $153000

= $300000

As per given information,

Rhode invest of $131000 for 25% interest in the equity.

So,

Rhode, capital:

= New capital (after admission) * 25%

= (Total capital + Rhode investment in equity) * 25%

= ($300000 + $131000) * 25%

= $107750

Therefore,

= $131000 - $107750

= $23250 (difference)

Hence, $23250 bonus is paid to Meir, Benson and Lau and they received it in income and loss sharing ratio 1:4:5.

That bonus paid by Rhode.

So,

Meir, capital = $23250 * (1/10) = $2325

Benson, capital = $23250 * (4/10) = $9300

Lau, capital = $23250 * (5/10) = $11625