Question

Admitting New Partner With Bonus 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 $58,000 and $75,000, 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 $36,000. 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. 2 c. Why would a bonus be paid in this situation? Apparently, Jenkins and Tanner value offered by Solano.

Answer 1

a.

Total capital (after the admission of Solano) = Cody Jenkin's capital + Lacey Tanner's capital + Solano's Contribution

= $58,000 + $75,000 + $36,000

= $169,000

Solano's share = Total capital * Solano's interest

= $169,000 * 30%

= $50,700

Solano's Bonus = $50,700 - $36,000

= $14,700

The recipient and the amount of partner bonus is $14,700 Solano.

b.

Accounts titles and explanation	Debit	Credit
Cash	$36,000
Cody Jenkin's capital ($14,700 / 2)	$7,350
Lacey Tanner's capital ($14,700 / 2)	$7,350
...Solano's Capital		$50,700
(To record the admission of Solano)

c.

Apparently, Jenkins and Tanner value the expertise offered by Solano.