Partnership is a form business wherein two or more individuals carry on a business to achieve a common purpose. All the norms and mutual decisions of partners are written down in a partnership agreement. To discuss: Concerns an individual might face when 30% interest in partnership is sold to an incoming partner for 30% of existing capital balances.

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Answer 1

Question

Chapter 14, Problem 1UTI

To determine

Introduction: Partnership is a form business wherein two or more individuals carry on a business to achieve a common purpose. All the norms and mutual decisions of partners are written down in a partnership agreement. To discuss: Concerns an individual might face when 30% interest in partnership is sold to an incoming partner for 30% of existing capital balances.

Expert Solution & Answer

Explanation of Solution

Given: 30% interest in partnership is sold to an incoming partner for 30% of existing capital balances.

Explanation: In such a situation, incoming partner contributes to existing partner in return of their share i.e., a new partner deals directly with an existing partner/partners. Following are two major concerns admitting of new partner:

The transaction doesn’t take place between the partnership firm and new partner. Instead, it is between new partner and existing partner/partners.
The consideration given by new partner may not be a reliable indicator for valuation of existing parter’s share in partnership. There exist a high possiblity that less consideration is paid for an existing partner’s share with high value.

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A partnership is considering selling a 30% interest in the partnership to an incoming partner for 30% of the existing capital balances. What concerns might you have with this proposal?

Required1. Given the stated fair values, if Rowe were to sell one-half of her interest in capital to someone outside the partnership, what would be a suggested asking price? 2. Given the stated fair values, if a third party were to convey assets to the partnership in exchange for a 40% interest in the partnership, what would the value of those assets have to be? 3. Assume a new partner was admitted to the partnership with a 40% interest in capital in exchange for a cash contribution of $60,000. What would Rowe’s capital balance be as a result of this transaction, assuming use of the bonus method? 4. Given the facts of (3) above, what would Rowe’s capital balance be, assuming use of the goodwill method? 5. Assume a new partner was admitted to the partnership with a 30% interest in capital in exchange for a contribution of $55,000 of net tangible assets. What would the new partner’s capital balance be as a result of this transaction, assuming use of the bonus method?

Under the bonus method, when a new partner is admitted to the partnership, the total capital of the new partnership is equal to what formula?

Answer 2

Question

Chapter 14, Problem 1UTI

To determine

Introduction: Partnership is a form business wherein two or more individuals carry on a business to achieve a common purpose. All the norms and mutual decisions of partners are written down in a partnership agreement. To discuss: Concerns an individual might face when 30% interest in partnership is sold to an incoming partner for 30% of existing capital balances.

Expert Solution & Answer

Explanation of Solution

Given: 30% interest in partnership is sold to an incoming partner for 30% of existing capital balances.

Explanation: In such a situation, incoming partner contributes to existing partner in return of their share i.e., a new partner deals directly with an existing partner/partners. Following are two major concerns admitting of new partner:

The transaction doesn’t take place between the partnership firm and new partner. Instead, it is between new partner and existing partner/partners.
The consideration given by new partner may not be a reliable indicator for valuation of existing parter’s share in partnership. There exist a high possiblity that less consideration is paid for an existing partner’s share with high value.

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Answer 3

Question

Chapter 14, Problem 1UTI

To determine

Introduction: Partnership is a form business wherein two or more individuals carry on a business to achieve a common purpose. All the norms and mutual decisions of partners are written down in a partnership agreement. To discuss: Concerns an individual might face when 30% interest in partnership is sold to an incoming partner for 30% of existing capital balances.

Expert Solution & Answer

Explanation of Solution

Given: 30% interest in partnership is sold to an incoming partner for 30% of existing capital balances.

Explanation: In such a situation, incoming partner contributes to existing partner in return of their share i.e., a new partner deals directly with an existing partner/partners. Following are two major concerns admitting of new partner:

The transaction doesn’t take place between the partnership firm and new partner. Instead, it is between new partner and existing partner/partners.
The consideration given by new partner may not be a reliable indicator for valuation of existing parter’s share in partnership. There exist a high possiblity that less consideration is paid for an existing partner’s share with high value.

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Answer 4

Question

Chapter 14, Problem 1UTI

To determine

Introduction: Partnership is a form business wherein two or more individuals carry on a business to achieve a common purpose. All the norms and mutual decisions of partners are written down in a partnership agreement. To discuss: Concerns an individual might face when 30% interest in partnership is sold to an incoming partner for 30% of existing capital balances.

Expert Solution & Answer

Explanation of Solution

Given: 30% interest in partnership is sold to an incoming partner for 30% of existing capital balances.

Explanation: In such a situation, incoming partner contributes to existing partner in return of their share i.e., a new partner deals directly with an existing partner/partners. Following are two major concerns admitting of new partner:

The transaction doesn’t take place between the partnership firm and new partner. Instead, it is between new partner and existing partner/partners.
The consideration given by new partner may not be a reliable indicator for valuation of existing parter’s share in partnership. There exist a high possiblity that less consideration is paid for an existing partner’s share with high value.

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Answer 5

Chapter 14, Problem 1UTI

To determine

Introduction: Partnership is a form business wherein two or more individuals carry on a business to achieve a common purpose. All the norms and mutual decisions of partners are written down in a partnership agreement. To discuss: Concerns an individual might face when 30% interest in partnership is sold to an incoming partner for 30% of existing capital balances.

Expert Solution & Answer

Explanation of Solution

Given: 30% interest in partnership is sold to an incoming partner for 30% of existing capital balances.

Explanation: In such a situation, incoming partner contributes to existing partner in return of their share i.e., a new partner deals directly with an existing partner/partners. Following are two major concerns admitting of new partner:

The transaction doesn’t take place between the partnership firm and new partner. Instead, it is between new partner and existing partner/partners.
The consideration given by new partner may not be a reliable indicator for valuation of existing parter’s share in partnership. There exist a high possiblity that less consideration is paid for an existing partner’s share with high value.

Answer 6

Chapter 14, Problem 1UTI

To determine

Introduction: Partnership is a form business wherein two or more individuals carry on a business to achieve a common purpose. All the norms and mutual decisions of partners are written down in a partnership agreement. To discuss: Concerns an individual might face when 30% interest in partnership is sold to an incoming partner for 30% of existing capital balances.

Expert Solution & Answer

Explanation of Solution

Given: 30% interest in partnership is sold to an incoming partner for 30% of existing capital balances.

Explanation: In such a situation, incoming partner contributes to existing partner in return of their share i.e., a new partner deals directly with an existing partner/partners. Following are two major concerns admitting of new partner:

The transaction doesn’t take place between the partnership firm and new partner. Instead, it is between new partner and existing partner/partners.
The consideration given by new partner may not be a reliable indicator for valuation of existing parter’s share in partnership. There exist a high possiblity that less consideration is paid for an existing partner’s share with high value.

Answer 7

Chapter 14, Problem 1UTI

To determine

Introduction: Partnership is a form business wherein two or more individuals carry on a business to achieve a common purpose. All the norms and mutual decisions of partners are written down in a partnership agreement. To discuss: Concerns an individual might face when 30% interest in partnership is sold to an incoming partner for 30% of existing capital balances.

Answer 8

Expert Solution & Answer

Explanation of Solution

Given: 30% interest in partnership is sold to an incoming partner for 30% of existing capital balances.

Explanation: In such a situation, incoming partner contributes to existing partner in return of their share i.e., a new partner deals directly with an existing partner/partners. Following are two major concerns admitting of new partner:

The transaction doesn’t take place between the partnership firm and new partner. Instead, it is between new partner and existing partner/partners.
The consideration given by new partner may not be a reliable indicator for valuation of existing parter’s share in partnership. There exist a high possiblity that less consideration is paid for an existing partner’s share with high value.