At April 30, partners’ capital balances in BAB Company are: Barney $30,000. Andy $16,000, and Bea $15,000.The income sharing ratios are 5:3:2, respectively. On May 1, the BABE Company is formed by admitting Ellen to the firm as a partner.
Instructions
(a) Journalize the admission of Ellen under each of the following independent assumptions.
(1) Ellen purchases 50% of Bea’s ownership interest by paying Bea $6,000 in cash.
(2) Ellen purchases 50% of Andy’s ownership interest by paying Andy $10,000 in cash.
(3) Ellen invests $29,000 cash in the partnership for a 40% ownership interest that includes a bonus to the new partner.
(4) Ellen invests $24,000 in the partnership for a 20% ownership interest, and bonuses are given to the old partners.
(b) Andy’s capital balance is $24,000 after admitting Ellen to the partnership by investment. If Andy’s ownership interest is 24% of total partnership capital, what were (1) Ellen’s cash investment and (2) the total bonus to the old partners?