Reference no: EM132642247
Question - Carrots joins the Partnership of Apple and Banana. Before the admission of Carrots, the partnership Statement of Financial Position shows the following information:
Cash: 30,000
Accounts Receivable: 140,000
Inventory: 200,000
Equipment: 500,000
Total assets: 870,000
Accounts payable: 80,000
Apple, Capital (60%) 515,000
Banana, Capital (40%) 275,000
Total Liabilities and Equity 870,000
The following adjustments are determined:
a. The recoverable amount of the Accounts Receivable is 120,000.
b. The Inventory has a fair value of 160,000.
c. The Equipment has a fair value of 450,000.
d. Unrecorded liabilities amount to 20,000.
Case 1: Carrots acquires half of Banana's interest for 800,000.
Requirements: a. Provide the entry to record the admission of Carrots.
b. Determine the balances of the partners' capital accounts after the admission of Carrots.
c. Determine the profit or loss sharing ratio of the partners after the admission of Carrots.
Case 2: Carrots invests 165,000 cash to the partnership in exchange for a 20% interest. Carrots' capital account is credited for the fair value of the 20% interest he acquired.
Requirements: a. Provide the journal entry to record the admission of Carrots.
b. Compute for the capital balances of the partners following the admission of Carrots.
c. Determine the profit or loss sharing ratio of the partners after the admission of Carrots.
Case 3: If Carrots is to invest sufficient cash to obtain 2/5 interest in the partnership, how much should Carrots contribute to the new partnership?