Chapter 15, Problem 15.16.5P

To determine

Accounting for the formation of partnership:at the formation of partnership, all the partners contributes agreed value of cash and noncash assets, it is necessary to assign a proper value to the noncash assets and liabilities contributed by partners. The partnership must clearly distinguish between capital contributions and loans made to the partnership by individual partners.

The individual partners must agree to the percentage of equity that each will have in the partnership’s net assets. Generally the capital balance is determined by proportionate share of each partner’s capital contribution.

Revaluation method: under this method of valuation of capital:

1. Increase the book values of existing net assets to their market values.
2. Record unrecognized goodwill.
3. Increase the existing partner’s capital accounts for their respective shares of the increase in the book values of the net assets and the recorded goodwill.
4. The partnership’s total resulting capital reflects the existing capital balances plus the amount of revaluation plus the new partner’s investment.

To choose:the correct answer to determine initial capital by N.