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Partnership Formation - Q2

The document outlines various partnership formations between different pairs of individuals, detailing their contributions, profit-sharing ratios, and adjustments based on asset revaluations and goodwill. It includes calculations for final capital contributions and balances for each partner after accounting for various factors such as depreciation, amortization, and additional contributions. Each section provides specific financial details and agreements made between the partners.

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johnivangarcia103500
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4 views5 pages

Partnership Formation - Q2

The document outlines various partnership formations between different pairs of individuals, detailing their contributions, profit-sharing ratios, and adjustments based on asset revaluations and goodwill. It includes calculations for final capital contributions and balances for each partner after accounting for various factors such as depreciation, amortization, and additional contributions. Each section provides specific financial details and agreements made between the partners.

Uploaded by

johnivangarcia103500
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Sarah and Tim are forming a partnership.

They agree that Sarah will have a 60% share of


profits, while Tim will have a 40% share. Sarah contributes:

● Cash: $25,000
● Machinery (Fair Market Value): $35,000
● Machinery (Original Cost): $45,000
● Outstanding Debt (Assumed by the Partnership): $10,000

Tim contributes:

● Building (Fair Market Value): $70,000


● Building (Original Cost): $80,000
● Accumulated Depreciation on Building: $20,000
● Cash: $15,000
● Mortgage (Assumed by the Partnership): $25,000

After revaluation, the machinery’s fair market value increases by 10%, and the building’s fair
market value decreases by 5%. The partners agree to adjust their capital contributions based on
the revaluations.

1. Determine the final capital contributions of both Sarah and Tim after revaluation.
2. What will be each partner’s capital account balance based on their profit-sharing ratio?
Lisa and Mike form a partnership. Lisa contributes:

● Cash: $20,000
● Patent (Fair Market Value): $25,000
● Patent (Original Cost): $30,000
● Liability (Assumed by the Partnership): $5,000

Mike contributes:

● Trademark (Fair Market Value): $35,000


● Trademark (Original Cost): $40,000
● Cash: $15,000
● Loan (Assumed by the Partnership): $10,000

The partners agree to recognize goodwill of $10,000, which will be shared equally. However,
they also agree that Lisa will receive a bonus of $5,000 in her capital account for bringing in the
patent, which is considered a key asset for the business.

1. Calculate the final capital balances of both partners after recognizing goodwill and Lisa’s
bonus.
2. Determine each partner’s adjusted capital account.
Alex and Jess have an existing partnership. Jess currently holds a capital balance of $100,000.
They decide to admit Chris as a new partner. Chris contributes:

● Cash: $30,000
● Equipment (Fair Market Value): $50,000
● Outstanding Loan (Assumed by the Partnership): $10,000

Chris is admitted with a 30% interest in the partnership. Additionally, Alex and Jess agree that
Chris should pay a premium of $5,000 for the goodwill of the existing business, which will be
credited to Alex and Jess’s capital accounts equally.

1. Determine Chris’s adjusted capital account after considering the premium.


2. Recalculate the capital balances of Alex and Jess after the premium distribution.
Tom and Jerry form a partnership. Tom contributes:

● Cash: $10,000
● Land (Fair Market Value): $40,000
● Land (Original Cost): $30,000
● Liability (Assumed by the Partnership): $8,000

Jerry contributes:

● Building (Fair Market Value): $60,000


● Building (Original Cost): $70,000
● Cash: $5,000
● Outstanding Mortgage (Assumed by the Partnership): $20,000

As part of the partnership agreement, Jerry agrees to make an additional $10,000 capital
contribution after six months. Tom, however, will be allowed to withdraw $5,000 from his capital
account as compensation for contributing the land at a lower original cost.

1. Calculate the initial capital balances for Tom and Jerry.


2. Determine the adjusted capital balances after Jerry’s future contribution and Tom’s
withdrawal.
Megan and Ryan decide to form a partnership. Megan contributes:

● Cash: $12,000
● Office Equipment (Fair Market Value): $25,000
● Office Equipment (Original Cost): $30,000
● Accumulated Depreciation on Office Equipment: $8,000

Ryan contributes:

● Patent (Fair Market Value): $35,000


● Patent (Original Cost): $40,000
● Accumulated Amortization on Patent: $15,000
● Cash: $10,000

The partners agree to revalue the office equipment and the patent at the time of formation
based on a market study. The new fair market value of the office equipment is $27,000, and the
new fair market value of the patent is $32,000. Additionally, Megan will receive an adjustment
for accumulated depreciation, while Ryan will receive an adjustment for accumulated
amortization.

1. Calculate the initial capital balances for Megan and Ryan based on the revalued assets.
2. Determine the final capital balances after considering the depreciation and amortization
adjustments.

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