Question
On March 1, 20Y8, Eric Keene and Renee Wallace form a partnership. Keene agrees to invest $20,900 in cash and merchandise inventory valued at $55,950.
On March 1, 20Y8, Eric Keene and Renee Wallace form a partnership. Keene agrees to invest $20,900 in cash and merchandise inventory valued at $55,950. Wallace invests certain business assets at valuations agreed upon, transfers business liabilities, and contributes sufficient cash to bring her total capital to $60,390. Details regarding the book values of the business assets and liabilities, and the agreed valuations, follow:
The left hand column is Wallace's Ledger balance and the right hand column is the agreed-upon value.
Accounts Receivable | $19,370 | $18,480 |
Allowance for Doubtful Accounts | 1,240 | 1,520 |
Equipment | 83,050 | 54,330 |
Accumulated Depreciation | 29,920 | |
Accounts Payable | 14,980 | 14,980 |
Notes Payable (current) | 35,860 | 35,860 |
The partnership agreement includes the following provisions regarding the division of net income: interest on original investments at 10%, salary allowances of $22,800 (Keene) and $30,590 (Wallace), and the remainder equally.
Calculate the net asset value of each partner's initial investment in the newly formed firm. Show your work. Briefly explain your answer summarizing relevant GAAP.
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