Two sole proprietors, L and M, agreed to form a partnership on January 1, 2009. The trial balance for each proprietorship is shown below as of January 1, 2009.
The LM partnership will take over the assets and assume the liabilities of the proprietors as of January 1, 2009.
Required:
a) Prepare a balance sheet, for financial accounting purposes, for the LM partnership as of January 1, 2009.
b) In addition, assume that M agreed to recognize the goodwill generated by L's business. Accordingly, M agreed to recognize an amount for L's goodwill such that L's capital equaled M's capital on January 1, 2009. Given this alternative, how does the balance sheet prepared for requirement A change?

Question

Two sole proprietors, L and M, agreed to form a partnership on January 1, 2009. The trial balance for each proprietorship is shown below as of January 1, 2009.  
The LM partnership will take over the assets and assume the liabilities of the proprietors as of January 1, 2009.
Required:
a) Prepare a balance sheet, for financial accounting purposes, for the LM partnership as of January 1, 2009.
b) In addition, assume that M agreed to recognize the goodwill generated by L's business. Accordingly, M agreed to recognize an amount for L's goodwill such that L's capital equaled M's capital on January 1, 2009. Given this alternative, how does the balance sheet prepared for requirement A change?

Quizplus · Accepted Answer

The Answer of Two sole proprietors, L and M, agreed to form a partnership on January 1, 2009. The trial balance for each proprietorship is shown below as of January 1, 2009.  
The LM partnership will take over the assets and assume the liabilities of the proprietors as of January 1, 2009.
Required:
a) Prepare a balance sheet, for financial accounting purposes, for the LM partnership as of January 1, 2009.
b) In addition, assume that M agreed to recognize the goodwill generated by L's business. Accordingly, M agreed to recognize an amount for L's goodwill such that L's capital equaled M's capital on January 1, 2009. Given this alternative, how does the balance sheet prepared for requirement A change?

Two Sole Proprietors, L and M, Agreed to Form a Partnership