combine the partnerships to form a new partnership to be known as Discount Partnership.

The partnerships of Up & Down and Back & Forth started in
business on July 1, 2005; each partnership owns one retail appliance
store. It was agreed as of June 30, 2008, to combine the partnerships to
form a new partnership to be known as Discount Partnership. Trial
balances of the two original partnerships as of June 30, 2008 follow.
Up & Down Back & Forth
Trial Balance Trial Balance
June 30, 2008 June 30, 2008
Cash $ 25,000 $ 20,000
Accounts Receivable 90,000 140,000
Allowance for Doubtful Accounts $ 2,000 $ 6,000
Merchandise Inventory 180,000 115,000
Land 25,000 35,000
Buildings and Equipment 80,000 125,000
Allowance for Depreciation 24,000 61,000
Prepaid Expenses 6,000 8,000
Accounts Payable 42,000 54,000
Notes Payable 65,000 74,000
Accrued Expenses 34,000 44,000
Up, Capital 95,000
Down, Capital 144,000
Back, Capital 65,000
Forth, Capital 139,000
Totals $406,000 $406,000 $443,000 $443,000
The following additional information is available.
1.
The profit- and loss-sharing ratios for the former partnerships were
40% to Up and 60% to Down; 30% to Back and 70% to Forth. The profit- and
loss-sharing ratio for the new partnership will be Up, 20%; Down, 30%;
Back, 15%; and Forth, 35%.
2. The opening capital ratios for the new
partnership are to be the same as the profit- and loss-sharing ratios
for the new partnership. The capital assigned to Up & Down will
total $225,000. Any cash settlements among the partners arising from
capital account adjustments will be a private matter and will not be
recorded on the partnership books.
3. The partners agreed that the allowance for bad debts for the new partnership is to be 4% of the accounts receivable balances.
4.
The opening inventory of the new partnership is to be valued by the
FIFO method. The inventory of Up & Down was valued by the FIFO
method and the Back & Forth inventory was valued by the LIFO method.
The LIFO inventory represents 80% of its FIFO value.
5. Depreciation
is to be computed by the double-declining balance method with a 10-year
life for the depreciable assets. Depreciation for three years is to be
accumulated in the opening balance of the Allowance for Depreciation
account. Up & Down computed depreciation by the straight-line
method, and Back & Forth used the double-declining balance method.
All assets were obtained on July 1, 2005.
6. After the books were
closed, an unrecorded merchandise purchase of $4,000 by Back & Forth
was discovered. The merchandise had been sold by June 30, 2008.
7.
The accounts of Up & Down include a vacation pay accrual. It was
agreed that Back & Forth should make a similar accrual for their 10
employees, who will receive a two-week vacation of $200 per employee per
week.
Required:
A. Prepare a worksheet to determine the
opening balances of a new partnership after giving effect to the
information above. Formal journal entries are not required. Supporting
computations, including the computation of goodwill, should be in good
form.
B. Prepare a schedule computing the cash to be exchanged
between Up & Down and between Back & Forth, in settlement of the
affairs of each original partnership.

 

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