Advanced Accounting

two_sole_proprietors.docx

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Two sole proprietors, L and M, agreed to form a partnership on January 1, 2009. The trial balance for each proprietorship is shown below as of January 1, 2009.

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(Source: Baker, Christensen, & Cottrell, 2012)

The LM partnership will take over the assets and assume the liabilities of the proprietors as of January 1, 2009.

Provide the following:

1. Prepare a balance sheet, for financial accounting purposes, for the LM partnership as of January 1, 2009.

2. In addition, assume that M agreed to recognize the goodwill generated by L's business. Accordingly, M agreed to recognize an amount for L's goodwill such that L's capital equaled M's capital on January 1, 2009. Given this alternative, how does the balance sheet prepared for #1 change?