Immediately prior to the admission of Abbott, the Smith-Jones Partnership assets had been adjusted to current market prices and the capital balances of Smith and Jones were $40,000 and $60,000, respectively. If the parties agree that the business is worth $120,000, what is the amount of bonus that should be recognized in the accounts at the admission of Abbott?

Question

Quizplus · Accepted Answer

The bonus is the difference between the agreed value of the business ($120,000) and the sum of the existing capital balances of Smith and Jones ($40,000 + $60,000 = $100,000). Therefore, the bonus amount is $120,000 - $100,000 = $20,000.

Immediately Prior to the Admission of Abbott, the Smith-Jones Partnership