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 $43,000 and $56,000, 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 the partnership at a 30% interest for a purchase price of $27,000.

a) Solano gets bonus of $10,800

b) Debit Cash $27,000, Jenkin's and Lacey's Capital Accounts for $5,400 each and Credit Solano Capital A/c $37,800

c) Solano gets the bonus because he brings experise and skills that are deemed useful to the partnership

Explanation:

FIrst, the completion of the question as follows:

A)Determine the recipient and the amount of the partner bonus

B) Provide the journal entry to admid Solano into the partnership

c) Why would a bonus be paid in this situation

solution

A) The first step is to determine the new partnership capital based on teh admission of Solano

= Existing Capital for the partnership = $43,000 + $56,000 = $99,000

New Paid in Capiital to Admit Solano = $99,000 + $27,000 = $126,000

The next step is to determine Solano's capital account as follows:

Solano is getting 30% share in the partnership

Therefore,

Paid in Capital = $126,000

Solano's Share of teh Partnership = 30%

Solano's capital = $126,000 x 30% = $37,800

The next step is to determine the calucation of the bonus

Solano invested 27,000 for capital of $37,800. The difference is $10,800 and this becomes the bonus

Actually bonus = $27,000 - $37,800 = -10,800

The existing partners will then share this according to their 50:50 sharing ratio

As such Jenkin's Share of Bonus = 50% x 10,800 = -5,400

Lacey = 50% x 10,800 = -5,400

Finally, since Solano had invested an amount thta is less than the book value of the share of partnership he got, the negative bonus of -10,800 calculated will be adjusted in capital account of the old partners and Solano will receive the bonus amount of -10,800

B) Journal Entry for Admission of Solano

Description                    Debit   Credit

Cash                              27,000

Jenkin's Capital  A/c      5,400

Lackey's Capital A/c      5,400

Solano's Capital A/c                   37,800

Being the Admission of Solano into the Partnership Business

c) The bonus being paid to Solano is because Solano is bringing in expertise in areas of landscape designs, cost setimates and rendering and these are useful and advantageous to the business.

yes the correct answer was

b.the increased supply will create a surplus.