At April 30 of the current year, partners' capital balances and the profit- and loss-sharing ratio in

Question:

At April 30 of the current year, partners' capital balances and the profit- and loss-sharing ratio in SOS Enterprises are as follows:

Partner Capital Balance Profit and Loss Ratio

R. Sanga....................$40,000............................................3

K. Osborne.................$20,000............................................2

W. Sanga...................$60,000............................................4

On May 1, the SOSO Company is formed by admitting N. Osvald to the firm as a partner.

Instructions

Journalize the admission of Osvald under each of the following independent assumptions:

(a) Osvald purchases 50% of W. Sanga's ownership interest by paying W. Sanga $32,000 cash.

(b) Osvald purchases 50% of Osborne's ownership interest by paying Osborne $13,000 cash.

(d) Osvald invests $40,000 in the partnership for a 20% ownership interest.

(e) Osvald invests $30,000 in the partnership for a 20% ownership interest.

Taking It Further

Why would a new partner be willing to pay a bonus to the existing partners in order to join a partnership? Give an example of a situation where this might happen.

Partnership
A legal form of business operation between two or more individuals who share management and profits. A Written agreement between two or more individuals who join as partners to form and carry on a for-profit business. Among other things, it states...