Answer Happy

On April 1, 2019, Harinder Singh and Maryka Jones formed a partnership. Of the total $50,000 of initial capital, Harinder contributed $36,000, with Maryka contributing the remainder. The partnership agreement specified that annually, interest of 6% would be paid on each partner's opening capital account balance. Further, salaries of $30,000 would be paid to each partner annually, and any remaining profit or loss would be allocated 60% to Harinder and 40% to Maryka. Initial profit for the first year of operations, prior to any salary or interest payments, was $110,000. The partnership has decided to admit a third partner, Jessica Chen, a current employee. Harinder, Maryka, and Jessica have agreed that Jessica will join the partnership on April 1, 2022, based on the March 31, 2022, financial statements. The partnership's balance sheet prepared under ASPE at March 31, 2022, was as follows: Cash $ 13,000 Receivables 28,000 Inventory 62,000 Property, plant, and equipment, net 122,000 $225.000 Current liabilities $ 25,000 Harinder, capital Maryka, capital 110,000 90,000 $225,000 Harinder and Maryka are considering two alternatives for admitting Jessica to the partnership: Proposal A: Jessica will contribute to the partnership $45,000 of cash, as well as equipment that cost Jessica $10,000 but has a current market value of $15,000. Jessica will receive a 25% share of the profits and a 20% share of the capital. Proposal B: Jessica will pay $20,000 directly to each of Harinder and Maryka, to purchase part of their share of the partnership. Harinder and Maryka will each transfer 20% of their capital to Jessica, who will have a 25% share of the profits.