Question
2. Fox & Matthews, CPAs, LLP, a forensic accounting consulting firm formed by Betty Fox and Angela Matthews, needed to be dissolved due to a
2. Fox & Matthews, CPAs, LLP, a forensic accounting consulting firm formed by Betty Fox and Angela Matthews, needed to be dissolved due to a court order. Fox & Matthews provided you with the following information for its 2019 calendar year operations:
Electricity expense.$2,000
Consulting revenues.$420,000
Utilities expense.$7,000
Fixed Assets .$210,000
Current Assets .$85,000
Current Liabilities.. $60,000
Inventory... $10,000
Total Assets...$295,000
A Certified Valuation Analyst (CVA) provided the following fair market values for Fox & Matthews, CPAs, LLP: the Fixed Assets and the Current Assets are valued at $280,000 and $90,000, respectively. Current Liabilities increased by $5,000. The profit sharing ratio is 3: 2 for the owners.
The partners disputed over the amounts presented by their accountants. As a result, you have been engaged by Fox & Matthews as a forensic accountant to compute the following for negotiations and a possible court case (litigation). You are required to compute:
- The amount of goodwill at the time of dissolution (Show your work below)
- The amount of money to be distributed to each partner including any goodwill using the profit sharing ratio given above (Show your work below)
- Net income from operations for the 2019 calendar year (Show your work below)
- Which business valuation approach (method) did you use and why? Explain
3. Based on the information given in Question 2 above, compute:
- Current ratio =
- Quick or Acid Test ratio =
- Working Capital =
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