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Why would the new partner pay a bonus to the old partners

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Reference no: EM132540035

Question -

A. Sasha, Serge, and Sander are partners in the Image Gallery. As of November 30, 2014, the balance in Sasha's Capital account was $100,000, the balance in Serge's was $120,000, and the balance in Sander's was $180,000. Sasha, Serge, and Sander share income and losses in a ratio of 2:3:5.

Required -

1. Prepare journal entries for each of the following independent conditions:

a. Rob pays Sander $200,000 for four-fifths of Sander's interest.

b. Rob is to be admitted to the partnership with a one-third interest for a $200,000 cash investment.

c. Rob is to be admitted to the partnership with a one-third interest for a $320,000 cash investment. A bonus, based on the partners' ratio for income and losses, is to be distributed to the original partners when Rob is admitted.

d. Rob is to be admitted to the partnership with a one-third interest for an $164,000 cash investment. A bonus is to be given to Rob on admission.

e. Sasha withdraws from the partnership, taking $132,000 in cash.

f. Sasha withdraws from the partnership by selling his interest directly to Rob for $140,000.

2. In general, when a new partner enters a partnership, why would the new partner pay a bonus to the old partners, or why would the old partners pay a bonus to the new partner?

Reference no: EM132540035

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