Lion and Tiger had operated as a partnership for a number of years. At June 30, 20XX their balance sheet appeared as below:
LION & TIGER
Balance Sheet, June 30, 20XX
Assets:
|
Cash
|
$5,000
|
|
Receivables
|
$30,000
|
|
Inventories
|
$60,000
|
|
Equipment (net)
|
$80,000
|
|
Building (net)
|
$90,000
|
|
$265,000
|
Liabilities:
|
Accounts Payable
|
$34,000
|
|
Accrued Liabilities
|
$6,000
|
|
Mortgage Payable
|
$80,000
|
|
Lion, Capital
|
$75,000
|
|
Tiger, Capital
|
$70,000
|
|
$265,000
|
Peters is interested in becoming a partner on equal terms with Lion and Tiger. The partners do not wish to have any goodwill exist on their books, and they have carefully studied their various asset values to determine the basis for Peters' investment. It is agreed that prior to admission of Peters, the receivables $66,000. Peters agrees to invest $75,000 for a one-third interest in the partnership. The partners agree that all capital accounts shall be equal after this investment. Assume an expansion.
Required:
1. Prepare Journal entries necessary to reflect the above. How much cash should Tiger pay Lion on a personal basis?
2. Assume the partners DO wish to record goodwill and no adjustments are necessary to the asset values other than goodwill. Prepare journal entries to record transactions. (Do not assume capital accounts are to be equal after entry.)