Perfect Cover Insurance Brokers is doing well with Assets - 262,000 Liabilities - 119,000 Equity – (Rita) - 143,000 Rita has been considering going into Partnership with two of her cousins, Frederika and Rose. The two cousins have $75,000 each they wish to invest in the business and Rita has agreed to give them each a 25% ownership share for their contribution. Rita will retain the other 50% ownership based on her contribution of equity from the business. Before deciding to go ahead with the partnership, Rita is trying to work out what impact it may have on any profit she makes. In the next 12 months, Rita predicts she will make a profit of $42,000. After discussing it with her cousins they have agreed any profits will be split based on their ownership percentage (Rita – 50% and Frederika and Rose – 25% each) but that Rita would be paid a salary of $25,000 for running the business and Frederika and Rose would be paid 10% interest on their $75,000 cash contributions. 1. You have been asked to show how to account Frederika and Rose admission on the partnership and comment on the decision made by Rita. 1 2. Based on the information above show how the profit for the year should be distributed amongst the partners and update their capital accounts accordingly.
Perfect Cover Insurance Brokers is doing well with Assets - 262,000 Liabilities - 119,000 Equity – (Rita) - 143,000 Rita has been considering going into Partnership with two of her cousins, Frederika and Rose. The two cousins have $75,000 each they wish to invest in the business and Rita has agreed to give them each a 25% ownership share for their contribution. Rita will retain the other 50% ownership based on her contribution of equity from the business. Before deciding to go ahead with the partnership, Rita is trying to work out what impact it may have on any profit she makes. In the next 12 months, Rita predicts she will make a profit of $42,000. After discussing it with her cousins they have agreed any profits will be split based on their ownership percentage (Rita – 50% and Frederika and Rose – 25% each) but that Rita would be paid a salary of $25,000 for running the business and Frederika and Rose would be paid 10% interest on their $75,000 cash contributions. 1. You have been asked to show how to account Frederika and Rose admission on the partnership and comment on the decision made by Rita. 1 2. Based on the information above show how the profit for the year should be distributed amongst the partners and update their capital accounts accordingly.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Perfect Cover Insurance Brokers is doing well with
Assets
- 262,000
Liabilities
- 119,000
Equity - (Rita)
- 143,000
Rita has been considering going into Partnership with two of her cousins, Frederika and
Rose. The two cousins have $75,000 each they wish to invest in the business and Rita has
agreed to give them each a 25% ownership share for their contribution. Rita will retain
the other 50% ownership based on her contribution of equity from the business.
Before deciding to go ahead with the partnership, Rita is trying to work out what impact
it may have on any profit she makes. In the next 12 months, Rita predicts she will make a
profit of $42,000. After discussing it with her cousins they have agreed any profits will be
split based on their ownership percentage (Rita - 50% and Frederika and Rose - 25%
each) but that Rita would be paid a salary of $25,000 for running the business and
Frederika and Rose would be paid 10% interest on their $75,000 cash contributions.
1. You have been asked to show how to account Frederika and Rose admission on
the partnership and comment on the decision made by Rita.
I 2. Based on the information above show how the profit for the year should be
distributed amongst the partners and update their capital accounts accordingly.
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