Partnership Formation

Max, Nat and Roberta formed a partnership to operate a dry-cleaning business. They agreed to share initial capital and subsequent income in a 5:3:2 ratio. Each partners contributions to the new venture are listed next.

Max: $25,000 cash, dry-cleaning equipment worth $180,000 and the ability to keep the equipment in good operating condition.

Nat: $15,000 cash and extensive experience in the dry-cleaning business.

Roberta: $20,000 cash and a 2-year $75,000 note, payable to the firm, with 3 percent interest on the unpaid balance.

Required

(a) Record the formation using the goodwill approach.

General Journal
Description	Debit	Credit
AnswerCapital - MaxInvestmentNote payableCash	Answer	Answer
Note receivable	Answer	Answer
Equipment	Answer	Answer
Goodwill	Answer	Answer
AnswerInvestmentNote payableCapital - MaxCash	Answer	Answer
Capital - Nat	Answer	Answer
Capital - Roberta	Answer	Answer

(b) Record the formation using the bonus approach.

General Journal
Description	Debit	Credit
AnswerCashInvestmentNote payableCapital - Max	Answer	Answer
Note receivable	Answer	Answer
Equipment	Answer	Answer
AnswerCapital - MaxNote payableInvestmentCash	Answer	Answer
Capital - Nat	Answer	Answer
Capital - Roberta	Answer	Answer