60.1K

Verified Solution

Link Copied!

LO 2 P14.1 Partnership Formation: Working Backward Brian and two other friends from his MS in Ac- counting program at Quality State University decide to form a CPA firm specializing in forensic account- ing. The three had worked for different Big Four firms for several years and accumulated a wealth of experience as well as a variety of other assets the new firm could use. After agreeing on a 2:3:1 capital and income ratio, the three listed what they intend to contribute to the new firm: Brian: Cash ($50,000), office and computer equipment ($30,000), knowledge of potential client base Jennifer: Cash ($40,000), specialized forensic skills Eric: Note payable to the firm ($60,000), extensive computer audit experience Pro-forma capital balances under three formation scenarios follow. Scenario #1 Scenario #2 Scenario #3 CapitalBrian ... Capital-Jennifer CapitalEric $152,000 148,000 60,000 $100,000 25,000 55,000 $125,000 50,000 85,000 a. Required In each scenario, identify the flow of bonuses or the amount and beneficiaries of goodwill recorded. b. Discuss the relative advisability of the three scenarios, paying particular attention to their effects on the new firm's future profitability and leverage (or credit-worthiness). LO 2 P14.1 Partnership Formation: Working Backward Brian and two other friends from his MS in Ac- counting program at Quality State University decide to form a CPA firm specializing in forensic account- ing. The three had worked for different Big Four firms for several years and accumulated a wealth of experience as well as a variety of other assets the new firm could use. After agreeing on a 2:3:1 capital and income ratio, the three listed what they intend to contribute to the new firm: Brian: Cash ($50,000), office and computer equipment ($30,000), knowledge of potential client base Jennifer: Cash ($40,000), specialized forensic skills Eric: Note payable to the firm ($60,000), extensive computer audit experience Pro-forma capital balances under three formation scenarios follow. Scenario #1 Scenario #2 Scenario #3 CapitalBrian ... Capital-Jennifer CapitalEric $152,000 148,000 60,000 $100,000 25,000 55,000 $125,000 50,000 85,000 a. Required In each scenario, identify the flow of bonuses or the amount and beneficiaries of goodwill recorded. b. Discuss the relative advisability of the three scenarios, paying particular attention to their effects on the new firm's future profitability and leverage (or credit-worthiness)

Answer & Explanation Solved by verified expert

See Answer