Entry of a new partner under the goodwill method.Pearsonand Murphy have partner capital balances, at book value, of $45,000 and $65,000 as of Decem-ber 31. Pearson is allocated 60% of profits or losses, and Murphy is allocated the balance. Thepartners believe that tangible net assets have a market value in excess of book value in theamount of $30,000 net. The $30,000 is allocated as follows:Book ValueMarket ValueAccounts receivable . . . . . . . . .$120,000$102,000Inventory
Entry of a new partner under the
EXERCISE 14-1
(1)
Inventory..........................................
Warranty Obligations.......................
Pearson, Capital..............................
Murphy, Capital..............................
To adjust book values to market values.
Cash.................................................
Goodwill............................................
Pearson, Capital..............................
Murphy, Capital..............................
Warner, Capital...............................
To record admission of Warner and recognition of goodwill.
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