Partner C buys a 60% interest from the partnership by bringing her business to combine with that of AB. Partners A and B share profits in a 3:1 ratio.

Required:

A. Does this admission qualify as a business combination under GAAP?

B. Determine which business is to be identified as the acquirer and which as the acquiree. Calculate the goodwill, if any, to be recorded on the books of the combined entity.

C. Prepare journal entries to record the entering business on the books of AB, including the adjustments to the capital accounts of all 3 partners, if needed.

Transcribed Image Text:

Entering Partner C's Partnership AB Business Book Value Fair Value Book Value Fair Value Cash 15,000 50,000 50,000 15,000 Accounts Receivable 20,000 20,000 100,000 100,000 200,000 PPE 158,000 178,000 180,000 Accounts Payable (13,000) (13,000) (30,000) (30,000) Capital A Capital B Capital C (45,000) (135,000) (300,000) Net Asset Value 180,000 200,000 300,000 320,000 Fair Value of 320,000 Entering Business