Cody jenkins and jun ito formed a partnership to provide landscaping services.jenkins and ito shared profit and losses equally . after all the tangible assets have been adjusted to current market prices the capital account ofcody Jenkins and jun ito have balance of 72000 and 38000 respectively. Valeria solao has expertise with using the computer to prepare landscape designs cost estimate and renderings . Jenkins and ito deem these skills useful thus solaono is admitted to the partnership at a 30% interest for a purchase price of 30000
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 the amount of the bonus would be the remaining profit after the capital accounts have been adjusted for Valeria Solano's admission. To determine the bonus amount, we subtract the purchase price of Valeria Solano's interest from the total capital accounts:
Total capital accounts before admission: $72,000 + $38,000 = $110,000
Valeria Solano's purchase price: $30,000
Remaining capital after Valeria Solano's admission: $110,000 - $30,000 = $80,000
Since Cody Jenkins and Jun Ito share profits and losses equally, the remaining capital of $80,000 will also be shared equally between them:
Partner bonus for Cody Jenkins: $80,000 / 2 = $40,000
B) Journal entry to admit Solano into the partnership:
1. Cash/Bank account: Debit $30,000
2. Valeria Solano's Capital account: Credit $30,000
C) A bonus is paid in this situation to compensate Cody Jenkins for the additional value he brought to the partnership. Since Valeria Solano is bringing expertise and skills that are deemed useful and valuable to the partnership, Cody Jenkins and Jun Ito agree to pay a bonus to Cody Jenkins as a recognition of his contribution to the business. This bonus is a way to reward him for supplying the opportunity for the partnership to benefit from Valeria Solano's skills.