1. FORMATION> Abe and Babe decide to form a partnership on Jan. 1, 1999. From their own businesses or personal assets they contribute the following assets which are shown at book value. BALANCE SHEET of Mr. Abe before forming Partnership $4,500 >>>> Abe contributes: Cash A-Rec Allow-Bad-Debt A-Pay $0 22,500 21,000 19,750 -1,500 Inv Equipment Acc-Depr Total Assets 32,000 14,000 $59,250 A, Capital Total Liab + Equity 59,250 $59,250 -18,000 Babe contributes from his books: CASH - $30,000, ACCOUNTS PAYABLE $10,000 AND A 1957 RUSTY CHEVY $1,200 a. Abe and Babe agree that the fair value of the store equipment is $10,000, inventory is $20,000, and net receivables is $19,500. Babe's Chevy is worth $2,000. (1) Record separate entries for each partner using the above data. Start a new set of books. (2) *What would Babe's entry be if they agreed he would have equal percentage interest in the partnership? (3) ** What would Abe's entry be if they agreed $7,000 goodwill related to Abe's business. b. Re-do (1) but use Abe's existing books for the partnership.
1. FORMATION> Abe and Babe decide to form a partnership on Jan. 1, 1999. From their own businesses or personal assets they contribute the following assets which are shown at book value. BALANCE SHEET of Mr. Abe before forming Partnership $4,500 >>>> Abe contributes: Cash A-Rec Allow-Bad-Debt A-Pay $0 22,500 21,000 19,750 -1,500 Inv Equipment Acc-Depr Total Assets 32,000 14,000 $59,250 A, Capital Total Liab + Equity 59,250 $59,250 -18,000 Babe contributes from his books: CASH - $30,000, ACCOUNTS PAYABLE $10,000 AND A 1957 RUSTY CHEVY $1,200 a. Abe and Babe agree that the fair value of the store equipment is $10,000, inventory is $20,000, and net receivables is $19,500. Babe's Chevy is worth $2,000. (1) Record separate entries for each partner using the above data. Start a new set of books. (2) *What would Babe's entry be if they agreed he would have equal percentage interest in the partnership? (3) ** What would Abe's entry be if they agreed $7,000 goodwill related to Abe's business. b. Re-do (1) but use Abe's existing books for the partnership.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:1. FORMATION> Abe and Babe decide to form a partnership on Jan. 1, 1999. From their own businesses or personal assets
they contribute the following assets which are shown at book value.
>>>> Abe contributes:
Cash
BALANCE SHEET of Mr. Abe before forming Partnership
$4,500
A-Pay
$0
22,500
-1,500
A-Rec
Allow-Bad-Debt
21,000
Inv
19,750
32,000
Equipment
Acc-Depr
Total Assets
14,000
$59,250
A, Capital
Total Liab + Equity
59,250
$59,250
-18,000
Babe contributes from his books: CASH - $30,000, ACCOUNTS PAYABLE $10,000 AND A 1957 RUSTY CHEVY $1,200
a. Abe and Babe agree that the fair value of the store equipment is $10,000, inventory is $20,000,
and net receivables is $19,500.
Babe's Chevy is worth $2,000.
(1) Record separate entries for each partner using the above data. Start a new set of books.
(2) * What would Babe's entry be if they agreed he would have equal percentage interest in the partnership?
(3) ** What would Abe's entry be if they agreed $7,000 goodwill related to Abe's business.
b. Re-do (1) but use Abe's existing books for the partnership.
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