Augustus Berrini, the sole proprietor of the Berrini Company, is planning to expand the company and establish a partnership with Fiedler and Wade. The partners plan to share profits and losses as follows: Berrini, 50 percent; Fiedler, 25 percent; Wade 25 percent. They also agree that the beginning capital balances of the partnership will reflect this same relationship.
Berrini asked Fiedler to join the partnership because his many business contacts are expected to be valuable during the expansion. Fiedler is also contributing $28,000. Wade is contributing $l l,000 and a block of marketable securities which the partnership expects to liquidate as needed during the expansion. The securities, which cost Wade $42,000, are currently worth $57,500.
Berrini's investment in the partnership is the Berrini Company. The balance sheet for the Berrini Company appears below. He plans to pay off the notes with his personal assets. The other partners have agreed that the partnership will assume the accounts payable and the mortgage. The three partners agree that the inventory is worth $85,000; the equipment is worth half its original cost; the building and land are worth $65,000 and $25,000, respectively; and the allowance established for doubtful accounts is correct.

Required
Prepare the balance sheet of the partnership on the date of formation under each of the following independent assumptions:
a. The partners agree to follow the bonus approach to record the formation.
b. The partners agree to follow the goodwill approach to record the formation.

Transcribed Image Text:

BERRINI COMPANY Balance Sheet Date of Partnership Formation Assets Cash_-... Accounts receivable (net).4 Inventory. Equipment (net of $12,000 Liabilities and owner's equity .. Accounts payable. 53,000 7.000 8,000 Notes payable. 2,000Mortgage payable55,000 55,000 115,000 accumulated depreciation).1 18,000 Owner's equity Building (net of $20,000 40,000 Capital, Berrini 15,000 .-..85,000 accumulated depreciation)···· Land $200,000 otal liabilities and owner's equity....