Hoskins & Sells is a partnership that was established in March 20X6. If a partner decides to leave the partnership, the value of her or his partnership share will be determined by the net book value of the partnership’s net assets at the end of the last- preceding fiscal year. The following transactions and events occurred during 20X6, in thousands of dollars:
• Acquired land for $ 200 and constructed a building at a cost of $ 800. Hoskins expects to use the building productively for about 20 years, after which the company will sell the building and move to new premises. Hoskins will amortize the building at a declining balance rate of 10% per year.
• Purchased furniture for $ 60. The useful life for the furniture is expected to be 10 years; it will be amortized on a straight- line basis, assuming no residual value.
• Had sales of $ 900 and operating and other expenses (excluding amortization) of $ 560.
• At the end of the year, fair value less costs to sell for the assets were as follows: – Land, $ 220 – Building, $ 775 – Furniture, $ 45

1. How much is Hoskins & Sells’s accounting income?
2. Calculate the economic income.
3. If you were a partner in Hoskins & Sells, would you prefer for the partnership to report its earnings and value its net assets in accordance with accounting income or economic income? Explain.

  • CreatedFebruary 17, 2015
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