Reference no: EM133071912
Question - On October 1, Mahaba and Maliit pooled their assets to form a Partnership, with the firm to take over the business assets and assume liabilities. Partners capitals are to be based on net assets transferred after the following adjustments.
The partners agreed to the following adjustments:
1. Mahaba's inventory is to be increased by $15,000, while Maliit's inventory has a current fair market value of $100,000 and an agreed value of $110,000. Maliit's unadjusted inventory amounted to $90,000.
2. Machinery and equipment are over-depreciated by $5,000 and $8,000 for Mahaba and Maliit, respectively.
3. Furnitures and fixtures for partner Mahaba has a current fair market value of $60,000 and an agreed value of $50,000. Furnitures and fixtures is carried at its cost amounting to $100,000 with accumulated depreciation of $45,000.
4. Accrued rent income of $10,000 for Mahaba, and accrued salaries of $5,000 for Maliit should be recognized on their respective books.
The individual trial balances on October 1, before adjustments, follow:
DESCRIPTION Mahaba
Assets $120,000
Liabilities 50,000
Maliit Assets $130,000
Liabilities 60.000
a. Determine the total capital balance of the Partnership after formation.
b. Assume that the partners agreed to account for the formation using the bonus approach, determine the amount of bonus.