HealthSource, LLC, consists of two doctors, Drew and Moore, who share in all inc

Question

HealthSource, LLC, consists of two doctors, Drew and Moore, who share in all income and losses according to a 2:3 income-sharing ratio. Dr. Mann has been asked to join the LLC. Prior to admitting Mann, the assets of HealthSource were revalued to reflect their current market values. The revaluation resulted in medical equipment being increased by $35,000. Prior to the revaluation, the equity balances for Drew and Moore were $201,000 and $289,000, respectively. a. Provide the journal entry for the asset revaluation. For a compound transaction, if an amount box does not require an entry, leave it blank or enter "0". b. Provide the journal entry for the bonus under the following independent situations: 1. Mann purchased a 30% interest in HealthSource, LLC, for $285,000. For a compound transaction, if an amount box does not require an entry, leave it blank or enter "0". 2. Mann purchased a 25% interest in HealthSource, LLC, for $155,000. For a compound transaction, if an amount box does not require an entry, leave it blank or enter "0".

Explanation / Answer

Entry for Revaluation: Medical Equipment Dr 35000 To Drew, Capital Cr 14000 To Moore, Capital Cr 21000 Part 1 Drew, Capital = 14000 + 201000 = 215000 Moore, Capital = 21000 + 289000 = 310000 Mann, Contribution = 285000 Total Owners’ equity after admitting Mann = 810000 Mann's Share after Admission = 810000*.30 = 243000 In this case Mann will pay =(285000 - 243000) = 42000 as bonus for admission Journal Entry: Cash Dr 285000 Mann Cr 243000 Drew Cr 16800 Moore Cr 25200 Part 2 Drew, Capital = 14000 + 201000 = 215000 Moore, Capital = 21000 + 289000 = 310000 Mann, Contribution = 155000 Total Owners’ equity after admitting Mann = 680000 Mann's Share after Admission = 680000*.25 = 170000 In this case Mann will be paid =(170000 - 155000) = 15000 as bonus for admission Journal Entry: Cash Dr 155000 Drew Dr 6000 Moore Dr 9000 Mann Cr 170000

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