5 On April 1, 2019, Harinder Singh and Maryka Jones formed a partnership. Of the total$50,000 of initial capital, Harinder contributed $36,000, with Maryka contributing theremainder. The partnership agreement specified that annually, interest of 6% would bepaid on each partner's opening capital account balance. Further, salaries of $30,000would be paid to each partner annually, and any remaining profit or loss would beallocated 60% to Harinder and 40% to Maryka.Initial profit for the first year of operations, prior to any salary or interest payments, was$110,000.The partnership has decided to admit a third partner, Jessica Chen, a current employee.Harinder, Maryka, and Jessica have agreed that Jessica will join the partnership onApril 1, 2022, based on the March 31, 2022, financial statements. The partnership'sbalance sheet prepared under ASPE at March 31, 2022, was as follows:Cash$ 13,000Receivables28,000Inventory62,000Property, plant, and equipment, net122,000$225.000Current liabilities$ 25,000Harinder, capitalMaryka, capital110,00090,000$225,000Harinder and Maryka are considering two alternatives for admitting Jessica to thepartnership:Proposal A:Jessica will contribute to the partnership $45,000 of cash, as well as equipment thatcost Jessica $10,000 but has a current market value of $15,000. Jessica will receivea 25% share of the profits and a 20% share of the capital.Proposal B:Jessica will pay $20,000 directly to each of Harinder and Maryka, to purchase partof their share of the partnership. Harinder and Maryka will each transfer 20% of theircapital to Jessica, who will have a 25% share of the profits.

Proposal A : Contribution by Jessica = $45,000 (cash) + $15,000 (equipment) = $60,000 Capital…

Proposal A: Jessica will contribute to the partnership $45,000 of cash, as well as equipment that cost Jessica $10,000 but has a current market value of $15,000. Jessica will receive a 25% share of the profits and a 20% share of the capital. Proposal B: Jessica will pay $20,000 directly to each of Harinder and Maryka, to purchase part of their share of the partnership. Harinder and Maryka will each transfer 20% of their capital to Jessica, who will have a 25% share of the profits.

Proposal A: Jessica will contribute to the partnership $45,000 of cash, as well as equipment that cost Jessica $10,000 but has a current market value of $15,000. Jessica will receive a 25% share of the profits and a 20% share of the capital. Proposal B: Jessica will pay $20,000 directly to each of Harinder and Maryka, to purchase part of their share of the partnership. Harinder and Maryka will each transfer 20% of their capital to Jessica, who will have a 25% share of the profits.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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