Pearson andMurphy have partner capital balances, at book value, of $45,000 and $65,000 as of December 31. Pearson is allocated 60% of profits or losses, and Murphy is allocated the balance. The partners believe that tangible net assets have a market value in excess of book value in the amount of $30,000 net. The $30,000 is allocated as follows: Book Value Market Value Accounts receivable . . . . . . . . . $120,000 $102,000 Inventory . . . . . . . . . . . . . . . . . . 200,000 258,000 Warranty obligations . . . . . . . . 20,000 30,000 They are considering admitting Warner to the partnership in exchange for total consideration of $84,000 cash. In exchange for the consideration, Warner will receive a 30% interest in capital and a 35% interest in profits. 1. Prepare the entries associated with the admission of Warner to the partnership under the goodwill method. 2. If the goodwill suggested by the admission of Warner proved to be worthless, determine by how muchWarner would be harmed.
Partnership Accounting
A partnership is a kind of arrangement between two or more people whereby they agree to manage the business operations and share its profits and losses in an agreed ratio between them. The agreement that is drafted and signed by the partners of the firm is termed as partnership deed and contains various important clauses agreed between the partners such as profit/loss sharing, interest on capital, remuneration allocation of each partner, drawings, admission of a new partner, etc.
Partner Admission and Withdrawal
A partnership is a kind of arrangement between two or more people whereby they agree to manage the business operations and share its profits and losses in an agreed ratio between them. The agreement that is drafted and signed by the partners of the firm is termed as a partnership deed and contains various important clauses agreed between the partners such as profit/loss sharing, interest on capital, remuneration allocation of each partner, drawings of a partner, etc.
Pearson andMurphy have partner capital balances, at book value, of $45,000 and $65,000 as of December 31. Pearson is allocated 60% of
Book Value Market Value
Inventory . . . . . . . . . . . . . . . . . . 200,000 258,000
Warranty obligations . . . . . . . . 20,000 30,000
They are considering admitting Warner to the
1. Prepare the entries associated with the admission of Warner to the partnership under the
2. If the goodwill suggested by the admission of Warner proved to be worthless, determine by how muchWarner would be harmed.
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