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24 December, 02:06

Assume that Partners A and B each report a Capital Account of $450,000. Partner C wants to join the partnership as an equal one-third partner. Because the partnership has been very profitable, Partners A and B require Partner C to contribute $900,000 in cash to the partnership in return for a one-third interest. Assume that Partners A and B share profits 60% and 40%, respectively, prior to the admission of Partner C. Required: If the Bonus Method is used to reflect the admission of Partner C, what amount of capital account should Partner C have?

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  1. 24 December, 03:33
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    If the Bonus Method is used to reflect the admission of Partner C, the amount of capital account that Partner C have is $600,000

    Explanation:

    In order to calculate the amount of capital account should Partner C have, we would need to calculate first the paid in capital after admission of C.

    Therefore, paid in capital after admission of C = existing partnership capital of A+existing partnership capital of B+investment by C.

    paid in capital after admission of C=$450,000+$450,000+$900,000

    paid in capital after admission of C=$1,800,000

    Therefore, C capital = partnership capital after C admission * c share

    C capital = $1,800,000*1/3

    C capital=$600,000

    Bonus=C capital allocation-investment by C

    Bonus=$600,000-$900,000

    Bonus=-$300,000

    Therefore, the admission of Partner C if the bonus method is used would reflect the following:

    Debit Credit

    Cash $900,000

    Capital A $180,000=$300,000*60%

    Capital B $120,000=$300,000*40%

    Capital C $600,000
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