Answer:
A.
Joe’s Capital (existing partner) = $90,000
Mike’s Capital (existing partner) = $70,000
Profit-sharing ratio = 6:4
Admission of Linda (new partner) with bonus to existing partners:
$100,000 cash contributed for 25% share
So, implied value of partnership firm after admission = $100,000 / 25% = $400,000
However, actual value of partnership firm after admission will be = $90,000 + $70,000 + $100,000 = $260,000
Linda’s Capital in new partnership = 25% * $260,000 = $65,000
However, Linda is contributing $100,000
So, bonus accruing to existing partners = $100,000 - $65,000 = $35,000
Bonus to be split in profit sharing ratio
Bonus accruing to Joe = $35,000 * 6/10 = $21,000
Bonus accruing to Mike = $35,000 * 4/10 = $14,000
Joe'sCapital
$21,000
Mike'sCapital
$14,000
Lindia's Capital
$65,000
b. Admission of Linda (new partner) with bonus to the new partner:
$36,000 cash contributed for 25% share
So, implied value of partnership firm after admission = $36,000 / 25% = $144,000
However, actual value of partnership firm after admission will be = $90,000 + $70,000 + $36,000 = $196,000
Linda’s Capital in new partnership = $196,000 * 25% = $49,000
However, contribution by Linda= $36,000
So, bonus accruing to Linda = $49,000 - $36,000 = $13,000
Joe’s share in bonus to Linda = $13,000 * 6/10 = $7,800
Mike’s share = $13,000 * 4/10 = $5,200
Joe'sCapital
$7,800
Mike'sCapital
$5,200
Lindia's Capital
$49,000
