6.Cody Jenkins and Jun Ito formed a partnership to provide landscaping services. Jenkins
and Ito shared profits and losses equally. After all the tangible assets have been adjusted to
current market prices, the capital accounts of Cody Jenkins and Jun Ito have balances of
$72,000 and $38,000, respectively. Valeria Solano has expertise with using the computer
to prepare landscape designs, cost estimates, and renderings. Jenkins and Ito deem these
skills useful; thus, Solano is admitted to the partnership at a 30% interest for a purchase
price of $30,000.
a)Determine the recipient and amount of the partner bonus.
b)Provide the journal entry to admit Solano into the partnership.
c)Why would a bonus be paid in this situation?
a) The recipient of the partner bonus would be Cody Jenkins and Jun Ito, as they are the existing partners. The amount of the partner bonus can be determined by calculating the excess of the total capital after the admission of Valeria Solano over the sum of the existing capital accounts.
Total capital after Solano's admission = $72,000 (Jenkins) + $38,000 (Ito) + $30,000 (Solano's purchase price) = $140,000
Excess capital = Total capital after Solano's admission - Sum of existing capital accounts
= $140,000 - ($72,000 + $38,000)
= $30,000
Since Jenkins and Ito share profits and losses equally, the partner bonus will be split equally between them.
Partner bonus amount for Jenkins and Ito = Excess capital / 2
= $30,000 / 2
= $15,000
Therefore, each of Jenkins and Ito will receive a partner bonus of $15,000.
b) The journal entry to admit Solano into the partnership would be:
Valeria's Solano's Capital Account Dr. $30,000
Cash Cr. $30,000
To record the admission of Valeria Solano into the partnership with a purchase price of $30,000.
c) A bonus is paid in this situation to compensate the existing partners (Jenkins and Ito) for the increase in the value of the partnership due to Solano's admission. The bonus serves as a recognition and distribution of the added value created by the new partner. It is a way to equalize the capital balances and recognize the contribution of the existing partners to the partnership's growth.