Chapter 16, Problem 16.3C

a.

To determine

Concept introduction:

Incorporation of a partnership: When a partnership business has good prospects of growth, the partners may go for the incorporation of the business which gives them access to additional equity financing. It also allows partners to limit their personal liability and the chance of having tax benefits. When partners decide on incorporation, the partnership has to be terminated and revaluation of business has to be carried out. The profit and loss on revaluation are distributed to partners’ in their profit and loss sharing ratio. Capital stock in the new corporation is distributed to the partners in proportion to their capital account balances.

To discuss: The differences in accounts used and valuations expected in the balance sheets of corporation and partnership.

b.

To determine

Concept introduction:

Incorporation of a partnership: When a partnership business has good prospects of growth, the partners may go for the incorporation of the business which gives them access to additional equity financing. It also allows partners to limit their personal liability and the chance of having tax benefits. When partners decide on incorporation, the partnership has to be terminated and revaluation of business has to be carried out. The profit and loss on revaluation are distributed to partners’ in their profit and loss sharing ratio. Capital stock in the new corporation is distributed to the partners in proportion to their capital account balances.

To discuss: The differences that would be expected in a comparison of the income statements of proposed corporation with that of partnership.