Recording new partner investment—Revaluation and nonrevaluation cases
The partnership of Mortin and Oscar is being dissolved, and the assets and equities at book value and fair value and the profit and loss sharing ratios at January 1, 2011, are as follows:
|
Book Value |
Fair Value |
|
|
Cash |
$ 20,000 |
$ 20,000 |
|
Accounts receivable—net |
100,000 |
100,000 |
|
Inventories |
50,000 |
200,000 |
|
Plant assets—net |
100,000 |
120,000 |
|
$270,000 |
$440,000 |
|
|
Accounts payable |
$ 50,000 |
$ 50,000 |
|
Mortin capital (50%) |
120,000 |
|
|
Oscar capital (50%) |
100,000 |
|
|
$270,000 |
Mortin and Oscar agree to admit Trent into the partnership for a one third interest. Trent invests $95,000 cash and a building to be used in the business with a book value to Trent of $100,000 and a fair value of $120,000.
REQUIRED
1. Prepare a balance sheet for the Mortin, Oscar, and Trent partnership on January 2, 2011, just after the admission of Trent, assuming that the assets are revalued and goodwill is recognized.
2. Prepare a balance sheet for the Mortin, Oscar, and Trent partnership on January 2, 2011, after the admission of Trent, assuming that the assets are not revalued.