Meyers is considering investing in one of several existing partnerships and is a
ID: 2447647 • Letter: M
Question
Meyers is considering investing in one of several existing partnerships and is attempting to con-
sider the price to be paid for a partnership interest. In addition to investing cash, Meyers would be contributing a piece of land that has a fair market value of $50,000. The existing partner- ships are characterized as follows:
Total assets at: Partnership A Partnership B Partnership C
Bookvalue................................. $500,000 $600,000 $800,000
Fair market value (excluding good will) . . . . . . . . . . . 450,000 725,000 850,000
Liabilities at book value and fair market value:
Accountspayable ........................... 120,000 150,000 300,000
Bankloans................................. 200,000 120,000 200,000
Notespayabletopartners..................... — 100,000 —
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49,500 40,000 58,000
Interest to be acquired by new partner:
Incapital .................................. 30% 25% 20%
Inprofitandlosses...........................25% 25% 20%
Determine the amount of consideration that Meyers should have to convey in order to acquire an interest in each of the partnerships.
Assume that in addition to the land Meyers was asked to convey cash of $4,000, $60,000, and $15,000 to partnerships A through C, respectively. Determine the amount of goodwill to be recorded assuming that all assets are adjusted to fair value. Indicate to whom the goodwill is traceable.
Explanation / Answer
Answer 1 :
Calculation of consideration for acquring interest in Partnership
Answer -2 Calculation of Goodwill
Firm A Goodwill is traceable.
Particulars Firm A Firm B Firm C Asset (Fair Value) (A) 500000 600000 800000 Less Liabilities Account Payable 120000 150000 300000 Bank Loans 200000 120000 200000 Notes Payable to Partner 0 100000 0 Notes Payable to Other 49500 40000 58000 Total Liabilities (B) 369500 410000 558000 Existing Capital of Partner (C)=(A-B) 130500 190000 242000 New Partner Interest in Capital (D) 30% 25% 20% New Capital of the firm's E=(C)/100-D 186428 253333 302500 Capital bring by New Partner (E)-(C) 55928 63333 60500