Admitting New Partner With Bonus Cody Jenkins and Lacey Tanner formed a partners

Question

Admitting New Partner With Bonus

Cody Jenkins and Lacey Tanner formed a partnership to provide landscaping services. Jenkins and Tanner shared profits and losses equally. After all the tangible assets have been adjusted to current market prices, the capital accounts of Cody Jenkins and Lacey Tanner have balances of $49,000 and $64,000, respectively. Valeria Solano has expertise with using the computer to prepare landscape designs, cost estimates, and renderings. Jenkins and Tanner deem these skills useful; thus, Solano is admitted to thepartnership at a 30% interest for a purchase price of $31,000.

a. Determine the recipient and amount of the partner bonus.
$

b. Provide the journal entry to admit Solano into the partnership. For a compound transaction, if an amount box does not require an entry, leave it blank.

c. Why would a bonus be paid in this situation?

Apparently, Jenkins and Tanner value offered by Solano.

Explanation / Answer

a. Bonus received by Solano: Cody Jenkins, capital $        49,000 Lacey Tanner, capital            64,000 Solano’s contribution            31,000 Total partners’ capital after admitting Solano $      144,000 Solano’s equity interest after admission x      30% Valeria Solano, capital $        43,200 Solano’s contribution            31,000 Bonus paid to Solano $        12,200 b. Cash 31,000 Cody Jenkins, Capital 6,100 Lacey Tanner, Capital 6,100 Valeria Solano, Capital 43,200 c. Apparently, Jenkins and Tanner value the expertise offered by Solano. Solano is able to use the computer to design and render landscape designs. It is likely that this type of skill is very useful for both selling and implementing landscape ideas. Her skills can help the partnership sell ideas to clients by providing computer renderings of the designs. In this way, a client can see the design on the computer before agreeing to work. In addition, the computer-aided landscapes provide materials plans, labor estimates, and other cost estimates for a particular design. Thus, the partners may be better able to control their costs by using Solano’s skills. Overall, they value her skills sufficiently to provide a partner bonus upon her admittance to the partnership.

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