Assume that Partners A and B each report a Capital Account of $450,000. Partner

Question

Assume that Partners A and B each report a Capital Account of $450,000. Partner C wants to join the partnership as an equal one-third partner. Because the partnership has been very profitable, Partners A and B require Partner C to contribute $900,000 in cash to the partnership in return for a one-third interest. Assume that Partners A and B share profits 60% and 40%, respectively, prior to the admission of Partner C. After admission of Partner C, Partners A and B retain their relative proportion of profit allocation after granting Partner C a 30% profit-allocation interest.

Required: Use the Bonus Method to record the journal entry on the books of the partnership to reflect the admission of Partner C.

Explanation / Answer

Cash A/c DR          $ 900,000

To Partner C Capital A/c       $ 900,000

This will be the only journal entry passed, since bonus method is simply where the existing capital of the Company is increased or decreased, on account of assets/liabilities brought in by the new partner on admission.

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