Partnership Formation Max, Nat and Roberta formed a partnership to operate a dry-cleaning business. They agreed to share initial capital and subsequent income in a 3:2:1 ratio. Each partner's contributions to the new venture are listed next. Max: $32,000 cash, dry-cleaning equipment worth $240,000 and the ability to keep the
Partnership Formation
Max, Nat and Roberta formed a partnership to operate a dry-cleaning business. They agreed to share initial capital and subsequent income in a 3:2:1 ratio. Each partner's contributions to the new venture are listed next.
Max: $32,000 cash, dry-cleaning equipment worth $240,000 and the ability to keep the equipment in good operating condition.
Nat: $64,000 cash and extensive experience in the dry-cleaning business.
Roberta: $24,000 cash and a 2-year $96,000 note, payable to the firm, with 12 percent interest on the unpaid balance.
Required
(a) Record the formation using the
| General Journal | ||
|---|---|---|
| Description | Debit | Credit |
| Answer | Answer | Answer |
| Note receivable | Answer | Answer |
| Equipment | Answer | Answer |
| Goodwill | Answer | Answer |
| Answer | Answer | Answer |
| Capital - Nat | Answer | Answer |
| Capital - Roberta | Answer | Answer |
(b) Record the formation using the bonus approach.
| General Journal | ||
|---|---|---|
| Description | Debit | Credit |
| Answer | Answer | Answer |
| Note receivable | Answer | Answer |
| Equipment | Answer | Answer |
| Answer | Answer | Answer |
| Capital - Nat | Answer | Answer |
| Capital - Roberta | Answer | Answer |
A partnership is a formal arrangement by two or more parties to manage and operate a business and share its profits. There are several types of partnership arrangements. In particular, in a partnership business, all partners share liabilities and profits equally, while in others, partners may have limited liability.
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