ASSIGNMENT
You are an accounting expert in forming and resolving partnerships. You have been visited by two gentlemen who are interested in starting a partnership. They want the business’s first day of operations to be January 1, 2019.
Mr. J. Bautista and Mr. S. Crosby want to form a partnership and start a sports memorabilia store.
Bautista is willing to invest $75,000 cash and a building he inherited worth $100,000. Crosby will invest $120,000 cash. Both are fully committed to making this a long lasting and successful business.
There is a possibility that on January 1, 2020 of them admitting another partner to their business Ms. A. Morissette. A. Morissette is very wealthy with substantial assets, however she lacks any sort of business experience.
If the new partner mentioned above decides to invest in the business, how much would you recommend she invest for a 1/3 equity stake based upon what she brings to the partnership?
Also, since A. Morissette is very controlling and can be quite rude. There is a good chance she will not work out, what is your recommendation on the accounting method to have her removed from the partnership on January 1, 2021.
Estimated first year net income is $95,000 and second year is $120,000. The partnership will have a December 31 year end.
Assessment Parts
- Write a 750 – 1000 word letter to Bautista and Crosby that outlines all accounting related calculations, journal entries, capital balances and partnership equity sections of the balance sheet based on the initial formation, the admission and withdrawal of the new partner.
