On January 1, 2021, A and B, both sole proprietors, decided to form a partnership to expand both of their businesses. According to their agreement, they will split profits and losses 75:25 and their initial capital ratio will also reflect that ratio. The following are A and B’s Statements of Financial Position (Attached in the photo): The values reflected in the Statement of Financial Position are already at fair values, except for the following accounts: - A's Accounts Receivable is now 20,000 less than what is stated in his Statement of Financial Position. - Both Inventories of A and B are now 90,000 and 70,000 respectively. - Equipment for B has an assessed value of 275,000, appraised value of 250,000 and book value of 200,000. - Additional accrued expenses are to be established in the amount of 10,000 for B only while additional accounts payable in the amount of 5,000 for A - It is also agreed that all liabilities will be assumed by the partnership, except for the notes payable of B which will be personally paid by him.   Answer the question based on the above: How much should A invest as additional cash to be in conformity with their initial capital agreement?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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On January 1, 2021, A and B, both sole proprietors, decided to form a partnership to expand both of their businesses. According to their agreement, they will split profits and losses 75:25 and their initial capital ratio will also reflect that ratio.
The following are A and B’s Statements of Financial Position (Attached in the photo):

The values reflected in the Statement of Financial Position are already at fair values, except for the following accounts:

- A's Accounts Receivable is now 20,000 less than what is stated in his Statement of Financial Position.
- Both Inventories of A and B are now 90,000 and 70,000 respectively.
- Equipment for B has an assessed value of 275,000, appraised value of 250,000 and book value of 200,000.
- Additional accrued expenses are to be established in the amount of 10,000 for B only while additional accounts payable in the amount of 5,000 for A
- It is also agreed that all liabilities will be assumed by the partnership, except for the notes payable of B which will be personally paid by him.  

Answer the question based on the above:

How much should A invest as additional cash to be in conformity with their initial capital agreement?  

B Proprietor
Statement of Financial Position
December 31, 2020
ASSETS
LIABILITIES & EQUITY
Cash
130,000 Accounts payable
75,000
Accounts receivable
10,000 Accrued expenses
90,000
Merchandise inventory
85,000 Notes payable
100,000
Equipment
300,000 A, Capital
160,000
Accum. Dep.
(100,000)
Total
425,000
Total
425,000
Transcribed Image Text:B Proprietor Statement of Financial Position December 31, 2020 ASSETS LIABILITIES & EQUITY Cash 130,000 Accounts payable 75,000 Accounts receivable 10,000 Accrued expenses 90,000 Merchandise inventory 85,000 Notes payable 100,000 Equipment 300,000 A, Capital 160,000 Accum. Dep. (100,000) Total 425,000 Total 425,000
A Proprietor
Statement of Financial Position
December 31, 2020
ASSETS
LIABILITIES & EQUITY
Cash
50,000 Accounts payable
65,000
Accounts receivable
100,000 Accrued expenses
55,000
Merchandise inventory
75,000 Notes payable
80,000
Equipment
250,000 A, Capital
90,000
Accum. Dep.
(185,000)
Total
290,000
Total 290,000
Transcribed Image Text:A Proprietor Statement of Financial Position December 31, 2020 ASSETS LIABILITIES & EQUITY Cash 50,000 Accounts payable 65,000 Accounts receivable 100,000 Accrued expenses 55,000 Merchandise inventory 75,000 Notes payable 80,000 Equipment 250,000 A, Capital 90,000 Accum. Dep. (185,000) Total 290,000 Total 290,000
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