EX 12-15 Admitting new partner with bonus
J. Witt and K. Torres are partners in Whole Earth Consultants. Witt and Torres share income equally. L. Jenkins will be admitted to the partnership. Prior to the admission, equipment was revalued downward by $12,000. The capital balances of each partner are $106,000 and $141,000, respectively, prior to the revaluation.
a. Provide the journal entry for the asset revaluation.
b. Provide the journal entry for Jenkins’ admission under the following independent situations:
1. Jenkins purchased a 20% interest for $45,000.
2. Jenkins purchased a 30% interest for $135,000.
Answer:
a. J. Witt, Capital........................................................... 6,000 K. Torres, Capital...................................................... 6,000 Equipment............................................................ 12,000
b. (1) Cash.................................................................... 45,000 J. Witt, Capital.................................................... 5,5001 K. Torres, Capital............................................... 5,500 L. Jenkins, Capital....................................... 56,000 1$11,000 × ½ = $5,500 Supporting calculations for the bonus: J. Witt, Capital ($106,000 – $6,000)................................... $100,000 K. Torres, Capital ($141,000 – $6,000).............................. 135,000 Contribution by Jenkins.................................................... 45,000 Total equity after admitting Jenkins................................. $280,000 Jenkins’ equity interest after admission.......................... × 20% L. Jenkins, Capital ............................................................. $ 56,000 Contribution by Jenkins.................................................... 45,000 Bonus paid to Jenkins....................................................... $ 11,000 The bonus to Jenkins is debited equally between Witt’s and Torres’ capital accounts.
b. (2) Cash.................................................................... 135,000 J. Witt, Capital ............................................. 12,0001 K. Torres, Capital ........................................ 12,000 L. Jenkins, Capital....................................... 111,000 1$24,000 × ½ = $12,000 Supporting calculations for the bonus: J. Witt, Capital.................................................................... $100,000 K. Torres, Capital............................................................... 135,000 Contribution by Jenkins.................................................... 135,000 Total equity after admitting Jenkins................................. $370,000 Jenkins’ equity interest after admission.......................... × 30% L. Jenkins, Capital ............................................................. $111,000 Contribution by Jenkins.................................................... $135,000 L. Jenkins, Capital ............................................................. 111,000 Bonus paid to Witt and Torres.......................................... $ 24,000 The bonus to Witt and Torres is credited equally between Witt’s and Torres’ capital accounts.
a. Provide the journal entry for the asset revaluation.
b. Provide the journal entry for Jenkins’ admission under the following independent situations:
1. Jenkins purchased a 20% interest for $45,000.
2. Jenkins purchased a 30% interest for $135,000.
Answer:
a. J. Witt, Capital........................................................... 6,000 K. Torres, Capital...................................................... 6,000 Equipment............................................................ 12,000
b. (1) Cash.................................................................... 45,000 J. Witt, Capital.................................................... 5,5001 K. Torres, Capital............................................... 5,500 L. Jenkins, Capital....................................... 56,000 1$11,000 × ½ = $5,500 Supporting calculations for the bonus: J. Witt, Capital ($106,000 – $6,000)................................... $100,000 K. Torres, Capital ($141,000 – $6,000).............................. 135,000 Contribution by Jenkins.................................................... 45,000 Total equity after admitting Jenkins................................. $280,000 Jenkins’ equity interest after admission.......................... × 20% L. Jenkins, Capital ............................................................. $ 56,000 Contribution by Jenkins.................................................... 45,000 Bonus paid to Jenkins....................................................... $ 11,000 The bonus to Jenkins is debited equally between Witt’s and Torres’ capital accounts.
b. (2) Cash.................................................................... 135,000 J. Witt, Capital ............................................. 12,0001 K. Torres, Capital ........................................ 12,000 L. Jenkins, Capital....................................... 111,000 1$24,000 × ½ = $12,000 Supporting calculations for the bonus: J. Witt, Capital.................................................................... $100,000 K. Torres, Capital............................................................... 135,000 Contribution by Jenkins.................................................... 135,000 Total equity after admitting Jenkins................................. $370,000 Jenkins’ equity interest after admission.......................... × 30% L. Jenkins, Capital ............................................................. $111,000 Contribution by Jenkins.................................................... $135,000 L. Jenkins, Capital ............................................................. 111,000 Bonus paid to Witt and Torres.......................................... $ 24,000 The bonus to Witt and Torres is credited equally between Witt’s and Torres’ capital accounts.
