Cody Jenkins and Jun Ito formed a partnership to provide landscaping services. Jenkins and Ito shared profits and losses equally

Cody Jenkins and Jun Ito formed a partnership to provide landscaping services. Jenkins and Ito shared profits and losses equally. After all the tangible assets have been adjusted to current market prices, the capital accounts of Cody Jenkins and Jun Ito have balances of $72,000 and $38,000, respectively. Valeria Solano has expertise with using the computer to prepare landscape designs, cost estimates, and renderings. Jenkins and Ito deem these skills useful; thus, Solano is admitted to the partnership at a 30% interest for a purchase price of $30,000.


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?


Answer:


















a. Bonus received by Solano:
Cody Jenkins, capital……………………………… $ 72,000
Jun Ito, capital……………………………………… 38,000
Solano’s contribution……………………………… 30,000
Total partners’ capital after admitting Solano… $140,000
Solano’s equity interest after admission………… × 30%
Valeria Solano, capital…………………………… $ 42,000
Solano’s contribution……………………………… 30,000
Bonus paid to Solano……………………………… $ 12,000
b. Cash 30,000
Cody Jenkins, Capital 6,000
Jun Ito, Capital 6,000
Valeria Solano, Capital 42,000




c. Apparently, Jenkins and Ito 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.