At September 30 of the current year, partners' capital balances and profit and loss ratios in NEW Company are as follows:
Partner Capital Balance Profit and Loss Ratio
A. Nolan....................$62,000....................................5
D. Elder.....................$48,000....................................4
T. Wuhan...................$14,000....................................1
On October 1, the NEWS Company is formed by admitting C. Santos to the partnership.
Instructions
Journalize the admission of C. Santos under each of the following independent assumptions:
(a) Santos purchases 25% of Nolan's ownership interest by paying Nolan $20,000 cash.
(b) Santos purchases 3313% of Elder's ownership interest by paying Elder $20,000 cash.
(c) Santos invests $80,000 for a 30% ownership interest.
(d) Santos invests $36,000 for a 30% ownership interest.
(e) How much would Santos have to invest in the partnership for a 30% ownership interest so there is no bonus to the existing partners or the new partner?
Taking It Further
Why would the existing partners be willing to give a bonus to the new partner? Give an example of a situation where this might happen.