You are a partner in a local accounting firm and have been engaged by Andy Taylo

Question

You are a partner in a local accounting firm and have been engaged by Andy Taylor and Floyd Barber to assist them in starting a new business. This business will sell new and used bicycles to the general public. Andy has been successfully selling bicycles out of his garage and believes that he needs a retail store to grow the business. Floyd owns a building that has been vacant for several years and has been looking for a business in which to invest. Calculate the basis each of them will have in the partnership.

Andy will contribute the following: Cash $10,000 Accounts Receivable $5,000 Inventory of Bicycles at cost $22,000 (sales value = $48,000) Accounts Payable $2,000.

Floyd will contribute the following: Cash $15,000 Land at cost $10,000 (market value $15,000) Building Cost $ 120,000 (market value $80,000) Useful life 40 years Residual Value $20,000 Accumulated depreciation to date $5,000 (2 years @ straight line method) Mortgage payable $70,000, interest only, payable monthly, balance due in 8 years.

Explanation / Answer

Andi share: 10,000 + 5000+ 22000 - 2000 =35000

Floyd share : 15000 + 15000+ 80000 - 70000 = 50000

The profit sharing ratio is 7:10

For others it is taken market value but for bicycle it is taken at cost.

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.