E 16-7Recording new partner investmentThe capital accounts of the Fax and Bel partnership on September 30, 2011, were:Fax capital (75% profit percentage) Bel capital (25% profit percentage)Total capital$140,000 60,000 $200,000On October 1, Rob was admitted to a 40 percent interest in the partnership when he purchased 40 percent of each existing partner’s capital for $120,000, paid directly to Fax and Bel.REQUIRED1. Determine the capital balances of Fax, Bel, and Rob after Rob’s admission to the partnership if goodwill is not recorded.2. Determine the capital balances of Fax, Bel, and Rob after Rob’s admission to the partnership if goodwill is recorded, assuming that the book value and fair value of recorded assets are equal.

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Asked Dec 10, 2019
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E 16-7

Recording new partner investment

The capital accounts of the Fax and Bel partnership on September 30, 2011, were:

Fax capital (75% profit percentage) Bel capital (25% profit percentage)

Total capital

$140,000 60,000 $200,000

On October 1, Rob was admitted to a 40 percent interest in the partnership when he purchased 40 percent of each existing partner’s capital for $120,000, paid directly to Fax and Bel.

REQUIRED

1. Determine the capital balances of Fax, Bel, and Rob after Rob’s admission to the partnership if goodwill is not recorded.

2. Determine the capital balances of Fax, Bel, and Rob after Rob’s admission to the partnership if goodwill is recorded, assuming that the book value and fair value of recorded assets are equal.

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Expert Answer

Step 1

1.

Calculation of capital balances for Fax, Bel, and Rob is as follows:

 

Resu...

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A. Balance after Capital accounts Beginning Adjustment adjustment |=B2+C2 |-вз+С3 =-(C2+C3) |=SUM(D2:D4) 2 Fax capital з Bel capital 4 Rob capital 5 Total capital =-(B2*40%) =-(B3*40%) 140000 60000 =SUM(B2:B4) Capital Balance after Beginning Adjustment adjustment 84000 accounts 2 Fax capital з Bel capital 4 Rob capital 5 Total capital -56000 140000 36000 60000 -24000 80000 200000 200000

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