Question

P14.7 Financial Sta cial Statement Effects of Partnership Expansion Graham and Hyde currently share prot- LO is and losses in a 3:1 ratio and are considering admitting Ingalls as a new partner with a 20 percent in- terest in capital and profits and losses. The different approaches to accounting for partnership expansion affect the financial statements of the new partnership. Condensed balance sheets for the Graham/Hyde partnership and the Graham/Hyde/Ingalls partnership under alternative admission approaches appear below. G/H G/H/ G/H/ G/H/ G/H/ #1 #2 #4 Cash and receivables......... $ 37,000 $ 37,000 $ 77,000 $ 77,000 $ 49,000 142,000 142,000 Other assets........ 142,000 222,000 150,000 $179,000 $179,000 Total assets $219,000 $299,000 $199,000 #3 Accounts payable...... Long-term debt ...... Capital-Graham ..... Capital-Hyde ......... Capital-Ingalls ......... Total liabilities and capital ..... $ 48,000 51,000 50,000 30,000 $ 48,000 51,000 40,000 24,000 16,000 $179.000 $ 48,000 51,000 62,000 34,000 24,000 $219,000 $ 48,000 51,000 110,000 50,000 40,000 $299,000 $ 48,000 51,000 50,000 30,000 20,000 $199,000 $179,000

Answer 1

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Answer: - Financial statement Effects of partnership Expansion : The alternatives after the amounts of assets y ease not liabilities. Alternatives 2 and 3 look good because de is a small part of the capital structure and total assets) and cash and the quick rano C ecash & receivables accounts payable highest. This may be offset by the presence of additional ther Assets (probably good will) which produce greater deprecia and possible impairment charges that exceed the additional earnings generated. The principal red flag involves the very large portion of total assete represented by other assets. What is the composition of other Assets a To the extent that goodwill es included as et ondoubtedly is an alternatives 3 and 4, impairement losses can cause a drag on earnings without corresponding earning power. Remember the partnership group is the Same talents, whether or not goodwill is recorded. In each alternative, Ingalls has the same 20t. of total capital Ingall's capital represents the greatest percentage of total assets in #3. Yet in #4 Ingalls acquires the 201 capital interest for $ 12000 (rather than $ 40000) cash. Either of these alternatives is probably preferred the other two although we cannot determine how Cash was paid in the personal transaction #1.

DX (os) particulars Hi ha H3 #4 cash 40000 40000 12000 8000 10000 other assers capital B Graham Capital - Hyde Capital B Ingalls 6000 (16000) (1/2000) (4000) (24000) 40.000 (6000) (20000) (40000) (2000) # 1: #2: #3: personal transaction between Ingalls, eevaham and Hyde. Bonus to old partners. Goodwill to old partners [80000 = 40000102 -(50000 + 30000 + 40000)] Goodwill to new partner [2000 = (50000 + 30000)/18 50000 + 30000 +12000] # 4: