Advanced Accounting
14th Edition
ISBN: 9781260247824
Author: Joe Ben Hoyle, Thomas F. Schaefer, Timothy S. Doupnik
Publisher: RENT MCG
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Your client has been asked to invest in a partnership which will develop a piece of real estate for commercial use. It is estimated that the development will occur over three years after which time the partnership will be liquidated. After reviewing selected historical and prospective financial information, your client has asked you to provide answers to the following questions:1. I thought goodwill could only be recorded by a company if it purchased another company. Why does the historical balance sheet show goodwill as an asset even though the partnership has not acquired any other companies?2. Apparently, a contribution of capital to a partnership can be recorded by either the bonus or goodwill method. For purposes of securing bank financing and reporting an attractive return on investment, which method would be most appropriate?3. If the partnership secured a bank loan, upon liquidation of the partnership which would be paid back first, the bank loan or my invested capital…
The following balance sheet is for a local partnership in which the partners have become very unhappy with each other.
To avoid more conflict, the partners have decided to cease operations and sell all assets. Using this information, answer the following questions. Each question should be viewed as an situation related to the partnership’s liquidation.
The $10,000 cash that exceeds the partnership liabilities is to be disbursed immediately. If profits and losses are allocated to Adams, Baker, Carvil, and Dobbs on a 2:3:3:2 basis, respectively, how will the $10,000 be divided?
The $10,000 cash that exceeds the partnership liabilities is to be disbursed immediately. If profits and losses are allocated on a 2:2:3:3 basis, respectively, how will the $10,000 be divided?
The building is immediately sold for $70,000 to give total cash of $110,000. The liabilities are then paid, leaving a cash balance of $80,000. This cash is to be distributed to the partners. How much of this money will each…
The partnership of Winn, Xie, Yang, and Zed has the following balance sheet:
Zed is personally insolvent, and one of his creditors is considering suing the partnership for the $10,000 that is currently owed. The creditor realizes that this litigation could result in partnership liquidation and does not wish to force such an extreme action unless Zed is reasonably sure of obtaining at least $10,000 from the liquidation.
Determine the amount for which the partnership must sell the other assets to ensure that Zed receives $10,000 from the liquidation. Liquidation expenses are expected to be $30,000.
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- Petersen, one of your clients, has indicated that Jacobsen is interested in buying Petersen’s interest in the partnership. Relevant information: (attached)Petersen has asked you a number of questions regarding selling his interest in the partnership. It is important to note that the partners vote on partnership matters in the same proportion as their profit and loss percentages.Prepare a response to each of the following questions:1. Given the above information, what is the suggested value of Petersen’s interest in the partnership?2. Petersen believes that there is significant additional value traceable to the partnership that is not reflected in the above information. In particular, Petersen believes that the partnership has significant goodwill and feels that his interest in the partnership is worth $130,000. What amount of total entity goodwill is suggested by this value?3. If Petersen were to sell half of his interest in the partnership to Jacobsen and half to Olsen, why might the…arrow_forwardThomas Richey operates a small shop that sells fishing equipment. His postclosing trial balance on December 31, 20X1, is shown below. Richey plans to enter into a partnership with Kathryn Price, effective January 1, 20X2. Profits and losses will be shared equally. Richey is to transfer all assets and liabilities of his store to the partnership after revaluation as agreed. Price will invest cash equal to Richey’s investment after revaluation. The agreed values are Accounts Receivable (net), $58,000; Merchandise Inventory, $199,600; and Furniture and Equipment, $49,200. The partnership will operate as Richey and Price Angler’s Outpost. Richey's Tackle Center Postclosing Trial Balance December 31, 20X1 Account Name Debit Credit Cash $19,000 Accounts Receivable 65,600 Allowance for Doubtful Accounts $10,000 Merchandise Inventory 180,000 Furniture and Equipment 116,400 Accumulated Depreciation 92,000 Accounts Payable…arrow_forwardA client of yours is forming a partnership and has asked you to review a draft of the partnership agreement. In particular, the client is interested in your thoughts regarding the section dealing with the withdrawal of a partner. Your client also anticipates that on an ongoing basis individual partners will draw significant funds out of the partnership after the fiscal year-end. These withdrawals will be based on a percentage of production fees generated by each of the partners. Selected excerpts from that section are as follows: A withdrawing partner must notify the partnership of his/her intent to withdraw by registered mail. The partnership has the first right to acquire the withdrawing partner’s interest in the partnership and must exercise its right within 60 days. If the partnership is not interested in acquiring the withdrawing partner’s interest, then the interest may be sold to an individual partner or another individual. However, any sale to another individual requires the…arrow_forward
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