Exercise 1 (LO 3, 4) Entry of a new partner under the goodwill method. Pearsonand Murphy have partner capital balances, at book value, of $45,000 and $65,000 as of Decem-ber 31. Pearson is allocated 60% of profits or losses, and Murphy is allocated the balance. Thepartners believe that tangible net assets have a market value in excess of book value in theamount of $30,000 net. The $30,000 is allocated as follows:Book ValueMarket ValueAccounts receivableInventory ....Warranty obligations$120,000200,00020,000$102,000258,00030,000They are considering admitting Warner to the partnership in exchange for total considera-tion of $84,000 cash. In exchange for the consideration, Warner will receive a 30% interest incapital and a 35% interest in profits.1. Prepare the entries associated with the admission of Warner to the partnership under thegoodwill method.2. If the goodwill suggested by the admission of Warner proved to be worthless, determine byhow much Warner would be harmed.

Partnership is formed by two or more person contribution assets to the firm as a capital. The…

Exercise 1 (LO 3, 4) Entry of a new partner under the goodwill method. Pearson and Murphy have partner capital balances, at book value, of $45,000 and $65,000 as of Decem- ber 31. Pearson is allocated 60% of profits or losses, and Murphy is allocated the balance. The partners believe that tangible net assets have a market value in excess of book value in the amount of $30,000 net. The $30,000 is allocated as follows: Book Value Market Value $120,000 $102,000 258,000 30,000 Accounts receivable 200,000 20,000 Inventory .... Warranty obligations They are considering admitting Warner to the partnership in exchange for total considera- tion of $84,000 cash. In exchange for the consideration, Warner will receive a 30% interest in capital and a 35% interest in profits. 1. Prepare the entries associated with the admission of Warner to the partnership under the goodwill method. 2. If the goodwill suggested by the admission of Warner proved to be worthless, determine by how much Warner would be harmed.

Exercise 1 (LO 3, 4) Entry of a new partner under the goodwill method. Pearson and Murphy have partner capital balances, at book value, of $45,000 and $65,000 as of Decem- ber 31. Pearson is allocated 60% of profits or losses, and Murphy is allocated the balance. The partners believe that tangible net assets have a market value in excess of book value in the amount of $30,000 net. The $30,000 is allocated as follows: Book Value Market Value $120,000 $102,000 258,000 30,000 Accounts receivable 200,000 20,000 Inventory .... Warranty obligations They are considering admitting Warner to the partnership in exchange for total considera- tion of $84,000 cash. In exchange for the consideration, Warner will receive a 30% interest in capital and a 35% interest in profits. 1. Prepare the entries associated with the admission of Warner to the partnership under the goodwill method. 2. If the goodwill suggested by the admission of Warner proved to be worthless, determine by how much Warner would be harmed.

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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