90.2K

Verified Solution

Link Copied!

Following is the condensed balance sheet of Martinez, O'Neill and Clemens, partners who share profits or losses in the ratio of $2$ : $3$ : $5.$

Cash $$28,800$ Liabilities $$120,000$

Other assets $451,200$ Capital $-$ Martinez $64,800$

Capital $-$ O'Neill $105,600$

Capital $-$ Clemens $189,600$

Total assets $$480,000$ Total liabilities and capital $$480,000$

$($a$)$ Assume that the partnership's assets and liabilities are fairly valued as shown. The partners wish to admit Jeter as a partner with a $30$ percent interest in capital, profits, and losses. They require Jeter to invest an amount such that bonus or goodwill adjustments are not needed. How much should Jeter invest for the $30$ percent share? $($Round your answer to two decimal places.$)$

$Answer $1$

$($b$)$ Assume instead that the existing partners, all of whom contemplate retirement relatively soon, decide to sell Jeter $30$ percent of their respective partnership interests for a total payment of $$126,000.$ This payment will be made proportionately to Martinez, O'Neill, and Clemens. The partners agree that implied goodwill is to be recorded prior to the transaction with Jeter. What are the capital balances of the four partners after the transaction with Jeter?

Balances After Acquisition

Martinez Answer $2$

O'Neill Answer $3$

Clemens Answer $4$

Jeter Answer $5$

Answer & Explanation Solved by verified expert

See Answer