Admitting a New LLC Member With Bonus Excel Medical, LLC, consists of two doctor

Question

Admitting a New LLC Member With Bonus

Excel Medical, LLC, consists of two doctors, Douglass and Finn, who share in all income and losses according to a 2:3 income-sharing ratio. Dr. Lindsey Koster has been asked to join the LLC. Prior to admitting Koster, the assets of Excel Medical were revalued to reflect their current market values. The revaluation resulted in medical equipment being increased by $21,000. Prior to the revaluation, the equity balances for Douglass and Finn were $202,000 and $231,000, 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.

b. Provide the journal entry for the bonus under the following independent situations:

1. Koster purchased a 30% interest in Excel Medical, LLC, for $259,000. For a compound transaction, if an amount box does not require an entry, leave it blank.

2. Koster purchased a 25% interest in Excel Medical, LLC, for $132,000. For a compound transaction, if an amount box does not require an entry, leave it blank.

Explanation / Answer

Solution a:

Solution b1:

Ratio of profit between Douglass and Finn = 2:3

Total capital after new capital introduced by Koster = ($202,000 + $231,000 + $21,000) + $259,000 = $713,000

Koster share in Partnership = 30%

Therefore required share of capital by Koster = $713,000 * 30% = $213,900

Bonus Capital introduced by Koster = $259,000 - $213,900 = $45,100

Bonus capital will be distributed in Douglass and Finn in ratio of 2:3

Solution b-2:

Ratio of profit between Douglass and Finn = 2:3

Total capital after new capital introduced by Koster = ($202,000 + $231,000 + $21,000) + $132,000 = $586,000

Koster share in Partnership = 25%

Therefore required share of capital by Koster = $586,000 * 25% = $146,500

As capital introduced by Koster is lesser by $14,500 therefore old partner capital share will be given to Koster in their profit sharing ratio i.e. 2:3

Journal Entries - Excel Medical S. No. Particulars Debit Credit 1 Medical Equipment Dr $21,000.00            To Revaluation A/c $21,000.00 (To record increase in value of equipment) 2 Revaluation A/c Dr $21,000.00            To Douglass's Capital ($21,000*2/5) $8,400.00            To Finn's Capital ($21,000*3/5) $12,600.00 (to record distribution of profit on revaluation)

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.