Answer:
a. see a. under the explanation below
b. see b. under the explanation below
c. 20%
Explanation:
a. 1:1 sharing agreement
A 1:1 sharing agreement implies that the new partner is also contributing the same amount which is the amount standing as equity for Santana Rey in Business Solutions as of January 1, 2018. That is, the new partner is to contribute $80,640 as capital.
The total capital will now be equal to $161,280 (i.e. $80,640 + $80,640)
The Journal entries is as follows:
In the book of the new partner:
DR CR
Business Solutions' Cash book $80,640
New Partner's bank account $80,640
<em>Being capital contributed to join Business Solution</em>
In the book of Business Solution:
DR CR
Cash book $80,640
New Partner's Capital account $80,640
<em>Being capital contributed by the new partner to join Business Solution</em>
(b) 4:1 sharing agreement
A 4:1 sharing agreement implies that the new partner will contribute one-quarter of $80,640 standing as equity for Santana Rey in Business Solutions as of January 1, 2018. This is calculated as follows:
Amount to contribute by the new partner = $80,640/4 = $20,160
This will make the total equity be $100,800 (i.e. $80,640 + $20,160)
The journal entries are presented as follows:
In the book of the new partner:
DR CR
Business Solutions' Cash book $20,160
New Partner's bank account $20,160
<em>Being capital contributed to join Business Solution</em>
In the book of Business Solution:
DR CR
Cash book $20,160
New Partner's Capital account $20,160
<em>Being capital contributed by the new partner to join Business Solution
</em>
3. Prepare the January 1, 2018, journal entry required to admit a new partner if the new partner invests cash of $20,160.
(The journal entry will be the same as what we have in b above as presented below:
In the book of the new partner:
DR CR
Business Solutions' Cash book $20,160
New Partner's bank account $20,160
<em>Being capital contributed to join Business Solution</em>
In the book of Business Solution:
DR CR
Cash book $20,160
New Partner's Capital account $20,160
<em>Being capital contributed by the new partner to join Business Solution
</em>
4. After posting the entry in part 3, what would be the new partner's equity percentage?
A contribution of $20,160 will make the total equity be equal to $100,800 (i.e. $80,640 + $20,160). As a result, the new partner's equity percentage is the new partner equity contributed divided by the new total of Business Solution’s equity multiply by 100. This is calculated as follows:
The new partner's equity percentage = ($20,160/$100,800) * 100
= 0.20 * 100
= 20%
I wish you the best.
