Question

Eric Christie and Johnnie Pitt organize a partnership. Their partnership agreement states that Christie will receive two-thirds of the partnership income or loss and Pitt will receive the remaining one-third. On January 2, the two partners agree to accept Peter Morgan as a partner with a 10% interest if Morgan invests $50,000 cash. At the time of Morgan's admission, the partnership`s accounting records show that Christie has recorded equity of $210,000 and Pitt has recorded equity of $60,000. The bonus that will be allocated to Christie as a result of this transaction (rounded to the nearest dollar) is:_______

Answer 1

Answer:

The bonus allocated to Christie is $13,500

Explanation:

The computation as to what amount of bonus will be allocated to Christie is as follows:

First, let's determine how much is the bonus that is subject for allocation.

$210,000 equity of Christie plus $60,000 equals $270,000 total equity of old partners. We'll

add the investment of Peter in the amount of $50,000, total equity is $320,000.

$320,000 x 10% of Peter = $32,000

So, $50,000 investment less $32,000 interest in the partnership, there will be $18,000

bonus to be divided by the old partners (Christie and Pitt) based on their old share ratio 3:1.

Now we can compute the allocation of bonus to old partners.

Christie $18,000 x 3/4 = $13,500

Pitt $18,000 x 1/4 = $4,500