ADVANCED FINANCIAL ACCOUNTING-ACCESS
ADVANCED FINANCIAL ACCOUNTING-ACCESS
12th Edition
ISBN: 9781260518740
Author: Christensen
Publisher: MCG
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Chapter 15, Problem 15.13P
To determine

New partner investment: A new partner may acquire a share of the partnership by investing in the business. In this case, the partnership receives the cash or other assets.

Three cases of investment are possible.

  1. The new partner investment equals to the new partner’s proportion of the partnership’s book value.
  2. The investment is more than new partner’s proportion of the partnership’s book value. This indicates that the partnership’s prior net assets are undervalued on the books or the unrecorded goodwill exists.
  3. The investment is for less than the new partner’s proportion of the partnership’s book value. This suggests that partnership’s prior net assets are overvalued on its books or the new partner may be contributing goodwill in addition to the other assets.

the amount new partner S must contribute in cash or other assets in each of the given cases.

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Sharon Mars, a recent graduate of Bell's accounting program, evaluated the operating performance of Carla Vista Company's six divisions. Sharon made the following presentation to Carla Vista's board of directors and suggested the Percy Division be eliminated. "If the Percy Division is eliminated," she said, "our total profits would increase by $25,300." The Other Five Divisions Percy Division Total Sales $1,663,000 $100,900 $1,763,900 Cost of goods sold 978,400 76,500 1,054,900 Gross profit 684,600 24,400 709,000 Operating expenses 528,500 49,700 578,200 Net income $156,100 $(25,300 ) $130,800 In the Percy Division, cost of goods sold is $60,100 variable and $16,400 fixed, and operating expenses are $29,100 variable and $20,600 fixed. None of the Percy Division's fixed costs will be eliminated if the division is discontinued. Is Sharon right about eliminating the Percy Division? Prepare a schedule to support your answer. (Enter negative amounts using either a negative sign preceding…
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