The Lucky Investment Club is a partnership of about 20 individuals who jointly invest in securities as
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On January 1, 2014, the books of the Lucky Investment Club showed cash of $3,200 and a portfolio of securities with a cost of $78,300 and a fair market value of $122,800. The Club has no liabilities. The capital accounts of the 18 partners aggregate $81,500. No new partners have been admitted since February 2011.
On January 2, 2014, Grant and Lee are admitted to the Club, each investing cash equal to a 1/18 share of the Club's assets at fair market value, prior to their investment of new cash. During 2014, the Club earned interest and dividends of $4,200. Each of the 20 partners invested $500 in new funds. Two securities were sold; each had been bought in 2012:
$40,000 was invested in new securities during 2014. The fair market value of the portfolio at December 31.2014 was $166,000.
Required
a. Why must new partners joining the Club invest based on the fair market value of the portfolio rather than the recorded book value?
b. How much must Grant and Lee each invest?
c. Allocate the Club's 2014 income among Grant, Lee, and the other 18 partners as a group.
d. In January 2015, a major stock market rally increases the portfolio value to $228,000. Club members vote to sell the entire portfolio and disband the Club. How much will Grant, Lee, and the other 18 partners as a group each receive?
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Related Book For
Advanced Accounting
ISBN: 978-1934319307
2nd edition
Authors: Susan S. Hamlen, Ronald J. Huefner, James A. Largay III
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