Partnership Accounting for Formation and Operation

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Two
sole proprietors, L and M, agreed to form a partnership on January 1,
2013. The trial balance for each proprietorship is shown below as of
January 1, 2013. Click the link at the bottom of the page to access a spreadsheet containing information from both proprietors.

The LM partnership will take over the assets and assume the liabilities of the proprietors as of January 1, 2013.

Discuss the following:

  1. The steps required to form the partnership.
  2. Prepare and post the financials for LM Partnership and discuss the differences that you have with your colleagues.
  3. After Thursday, Prepare the following:
    1. Assume that M agreed to recognize the goodwill generated by L’s business, $10,000.
    2. Accordingly, L agreed to
      recognize an amount for M’s goodwill such that L’s capital equaled M’s
      capital on January 1, 2013. Given this alternative, how does the balance
      sheet prepared change? Present the new LM Partnership with equal
      capital accounts.
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