The Distance Plus partnership has the following capital balances at the beginnin

Question

The Distance Plus partnership has the following capital balances at the beginning of the current year:

Each of the following questions should be viewed independently.

If Sergio invests $100,000 in cash in the business for a 30 percent interest, what journal entry is recorded? Assume that the bonus method is used. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

The Distance Plus partnership has the following capital balances at the beginning of the current year:

Explanation / Answer

FIRST WE WILL CALCULATE THE BONUS AMOUNT AND THEN WE WILL PASS THE NECESSARY JOURNAL ENTRY.

EXISTING CAPITAL IS 80000 + 50000 + 65000 = 195000

INVESTMENT BY NEW PARTNER 100000

TOTAL CAPITAL OF NEW FIRM 295000

CAPITAL CREDIT AVAILABLE WILL BE EQUAL TO SHARE OF SERGIO OR 30%

= 295000 * 0.3 = 88500

AMOUNT OF BONUS WILL BE = NEW PARTNER SHARE LESS CAPITAL CREDIT

= 100000 - 88500 = 11500

NOW WE WILL DISTRIBUTE THIS AMOUNT AMONG OLD PARTNERS IN THEIR PROFIT RATIOS.

TIGER 40% OF 11500 = 4600. PHIL 40% OF 11500 = 4600 AND ERNIE 20% OF 11500 = 2300.

JOURNAL ENTRY WILL BE

CASH 100000

TIGER 4600

PHIL 4600

ERNIE 2300

SERGIO 88500

( TO RECORD ADMISSION OF NEW PARTNER AND DISTRIBUTION

OF BONUS AMONGST OLD PARTNERS)

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