Josiah Barlow, Patty DuMont, and Owen Maholic are contemplating the formation of a partnership. According to the partnership agreement, Barlow is to invest $60,000 and devote one-half time, DuMont is to invest $40,000 and devote three-fourths time, and Maholic is to make no investment and devote full time. Would Maholic be correct in assuming that since he is not contributing any assets to the firm, he is risking nothing? Explain.

Josiah Barlow, Patty DuMont, and Owen Maholic are contemplating the formation of a partnership. According to the partnership agreement, Barlow is to invest $60,000 and devote one-half time, DuMont is to invest $40,000 and devote three-fourths time, and Maholic is to make no investment and devote full time. Would Maholic be correct in assuming that since he is not contributing any assets to the firm, he is risking nothing? Explain.

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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Josiah Barlow, Patty DuMont, and Owen Maholic are contemplating the formation og a partnership. According to the partnership agreement, Barlow is to invest $60,000 and devote one-half time, DuMont is to invest $40,000 and devote three-fourths time, and Maholic is to make no investment and devote full time. Would Maholic be correct in assuming that since he is not contributing any assets to the firm, he is risking nothing? Explain.
Josiah Barlow, Patty DuMont, and Owen Maholic are contemplating the formation of a partnership. According to the partnership agreement, Barlow isto invest $60,000 and devote one-half time, DuMont is to invest $40,000 and devote three-fourths time, and Maholic is to make no investment and devotefull time. Would Maholic be correct in assuming that since he is not contributing any assets to the firm, he is risking nothing? Explain.
The partnership of Anderson, Berry, Hammond, and Winwood is being liquidated. It currently holds cash of $20,000 but no other assets. Liabilities amount to $30,000. The capital balances are If both Hammond and Winwood are personally insolvent, how much money must Berry contribute to this partnership? If only Winwood is personally insolvent, how much money must Hammond contribute to the partnership? How will these funds be disbursed? If only Hammond is personally insolvent, how much money should Anderson receive from the liquidation?
Steve Reese is a well-known interior designer in Fort Worth, Texas. He wants to start his own business and convinces Rob O’Donnell, a local merchant, to contribute the capital to form a partnership. On January 1, 2022, O’Donnell invests a building worth $54,000 and equipment valued at $20,000 as well as $16,000 in cash. Although Reese makes no tangible contribution to the partnership, he will operate the business and be an equal partner in the beginning capital balances. To entice O’Donnell to join this partnership, Reese draws up the following profit and loss agreement: O’Donnell will be credited annually with interest equal to 10 percent of the beginning capital balance for the year. O’Donnell will also have added to his capital account 10 percent of partnership income each year (without regard for the preceding interest figure) or $5,000, whichever is larger. All remaining income is credited to Reese. Neither partner is allowed to withdraw funds from the partnership during 2022.…
Steve Reese is a well-known interior designer in Fort Worth, Texas. He wants to start his own business and convinces Rob O’Donnell, a local merchant, to contribute the capital to form a partnership. On January 1, 2019, O’Donnell invests a building worth $126,000 and equipment valued at $132,000 as well as $52,000 in cash. Although Reese makes no tangible contribution to the partnership, he will operate the business and be an equal partner in the beginning capital balances. To entice O’Donnell to join this partnership, Reese draws up the following profit and loss agreement: O’Donnell will be credited annually with interest equal to 10 percent of the beginning capital balance for the year. O’Donnell will also have added to his capital account 20 percent of partnership income each year (without regard for the preceding interest figure) or $7,000, whichever is larger. All remaining income is credited to Reese. Neither partner is allowed to withdraw funds from the partnership during…
Steve Reese is a well-known interior designer in Fort Worth, Texas. He wants to start his own business and convinces Rob O’Donnell, a local merchant, to contribute the capital to form a partnership. On January 1, 2019, O’Donnell invests a building worth $74,000 and equipment valued at $44,000 as well as $32,000 in cash. Although Reese makes no tangible contribution to the partnership, he will operate the business and be an equal partner in the beginning capital balances. To entice O’Donnell to join this partnership, Reese draws up the following profit and loss agreement: O’Donnell will be credited annually with interest equal to 10 percent of the beginning capital balance for the year.O’Donnell will also have added to his capital account 10 percent of partnership income each year (without regard for the preceding interest figure) or $6,000, whichever is larger. All remaining income is credited to Reese.Neither partner is allowed to withdraw funds from the partnership during 2019.…
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Lindsey Wilson has agreed to invest $200,000 into an LLC with Lacy Lovett and Justin Lassiter. Lovett and Lassiter will not invest any money but will provide effort and expertise to the LLC. Lovett and Lassiter have agreed that the net income of the LLC should be divided so that Wilson is to receive a 10% preferred return on her capital investment prior to any remaining income being divided equally among the partners. In addition, Lovett and Lassiter have suggested that the operating agreement be written so that all matters are settled by majority vote, with each partner having a one-third voting interest in the LLC.If you were providing Lindsey Wilson counsel, what might you suggest in forming the final agreement?
Steve Reese is a well-known Interior designer in Fort Worth, Texas. He wants to start his own business and convinces Rob O'Donnell, a local merchant, to contribute the capital to form a partnership On January 1, 2022, O'Donnell Invests a building worth $102,000 and equipment valued at $40,000 as well as $38,000 in cash. Although Reese makes no tangible contribution to the partnership, he will operate the business and be an equal partner In the beginning capital balances. To entice O'Donnell to join this partnership. Reese draws up the following profit and loss agreement: ⚫ O'Donnell will be credited annually with interest equal to 20 percent of the beginning capital balance for the year. ⚫ O'Donnell will also have added to his capital account 10 percent of partnership Income each year (without regard for the preceding Interest figure) cr $4,000, whichever is larger. All remaining Income is credited to Reese. Neither partner is allowed to withdraw funds from the partnership during 2022.…
PP, RR and SS are new CPA’s and are to form a partnership. PP is to contribute cash of P50,000 and his computer originally costing P60,000 but has a second-hand value of P25,000. RR is to contribute cash of P80,000. SS, whose family is selling computers, is to contribute cash of P25,000 and a brand-new computer with a regular selling price of P60,000 but which cost is P50,000. Partners agree to share profits equally. The capital balances upon formation are: PP RR SSa. P 75,000 P80,000 P85,000b. P110,000 P80,000 P75,000c. P 80,000 P80,000 P80,000d. P 83,333 P83,333 P83,334
Rondo and his business associate, Larry, are considering forming a business entity called R&L, but they are unsure about whether to form it as a C corporation, an S corporation, or an LLC taxed as a partnership. Rondo and Larry would each invest $150,000 in the business. Thus, each owner would take an initial basis in his ownership interest of $150,000 no matter which entity type is formed. Shortly after the formation of the entity, the business borrowed $50,000 from the bank. If applicable, this debt will be shared equally between the two owners. a. After taking the loan into account, what is Rondo's tax basis in his R&L stock if R&L is formed as a C corporation? b. After taking the loan into account, what is Rondo's tax basis in his R&L stock if R&L is formed as an S corporation? c. After taking the loan into account, what is Rondo's tax basis in his R&L ownership interest if R&L is formed as an LLC and taxed as a partnership?