EX 12-15 Admitting new partner with bonus

G. Ferris and T. Martinez are partners in Elegant Event Consultants. Ferris and Martinez share income equally. D. Perez will be admitted to the partnership. Prior to the admission, equipment was revalued downward by $18,000. The capital balances of each partner are $133,000 and $85,000, respectively, prior to the revaluation.

a. Provide the journal entry for the asset revaluation.
b. Provide the journal entry for Perez’s admission under the following independent situations:

1. Perez purchased a 20% interest for $40,000.
2. Perez purchased a 30% interest for $112,000.


Answer:

a. G. Ferris, Capital 9,000
T. Martinez, Capital 9,000
Equipment 18,000

b. (1) Cash 40,000
G. Ferris, Capital* 4,000
T. Martinez, Capital 4,000
D. Perez, Capital 48,000
* $8,000 × 1/2 = $4,000
Supporting calculations for the bonus:
G. Ferris, capital ($133,000 – $9,000)…… $124,000
T. Martinez, capital ($85,000 – $9,000)… 76,000
Contribution by Perez……………………… 40,000
Total equity after admitting Perez………… $240,000
Perez’s equity interest after admission × 20%
D. Perez, capital…………………………… $ 48,000
Contribution by Perez……………………… 40,000
Bonus paid to Perez………………………… $ 8,000
(2) Cash 112,000
G. Ferris, Capital* 9,200
T. Martinez, Capital 9,200
D. Perez, Capital 93,600

 $18,400 × 1/2 = $9,200
Supporting calculations for the bonus:
G. Ferris, capital…………………………… $124,000
T. Martinez, capital………………………… 76,000
Contribution by Perez……………………… 112,000
Total equity after admitting Perez………… $312,000
Perez’s equity interest after admission × 30%
D. Perez, capital…………………………… $ 93,600
Contribution by Perez……………………… $112,000
D. Perez, capital……………………………… 93,600
Bonus paid to Ferris and Martinez $ 18,400
The bonus to Ferris and Martinez is credited equally between Ferris’
and Martinez’s capital accounts.