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Car and Lam establish an equal partnership in both equity and profits to operate a used-furniture business under the name of C&L Furniture. Car contributes furniture inventory that cost $120,000 and has fair value of $160,000. Lam contributes $60,000 cash and delivery equipment that cost $80,000 and has a fair value of $60,000.RequiredAssume that the initial noncash contributions of the partners are recorded at fair market value. Compute the ending balance of each capital account under the bonus and goodwill approaches.

Question

Car and Lam establish an equal partnership in both equity and profits to operate a used-furniture business under the name of C&L Furniture. Car contributes furniture inventory that cost $120,000 and has fair value of $160,000. Lam contributes $60,000 cash and delivery equipment that cost $80,000 and has a fair value of $60,000.

Required

Assume that the initial noncash contributions of the partners are recorded at fair market value. Compute the ending balance of each capital account under the bonus and goodwill approaches.

check_circleAnswer
Step 1

Step 1 :

Calculate the total cost contributed by Partner Car and Partner Lam.

 

Particulars
Car in $
Lam in S
Inventory (Furniture)
Cash contribution
Delivery equipment
Total cost
160,000
60,000
60, 000
160,000
120,000
help_outline

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Particulars Car in $ Lam in S Inventory (Furniture) Cash contribution Delivery equipment Total cost 160,000 60,000 60, 000 160,000 120,000

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Step 2

Note: Non-cash contributions are made at fair market value.

Step 3

Step 2:

 Journal entry for adjustment of ...

Debit
Credit
Post
Account Titles and explanation
Date
(S)
Ref
(S)
Car capital
Lam capital
(To establish equal capital interest between the
partners as they share equal equity and profits)
20,000
20,000
help_outline

Image Transcriptionclose

Debit Credit Post Account Titles and explanation Date (S) Ref (S) Car capital Lam capital (To establish equal capital interest between the partners as they share equal equity and profits) 20,000 20,000

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