Question

Immediately prior to the admission of Allen, the Sanson-Jeremy Partnership assets had been adjusted to current market prices and the capital balances of Sanson and Jeremy were $80,000 and $120,000 respectively. If the parties agree that the business is worth $240,000, what is the amount of bonus that should be recognized in the accounts at the admission of Allen?

a. $40,000 b. $60,000 c. $100,000 d. $80,000

Answer 1

The answer is: A) $40,000

Step-by-step explanation:

All you have to do is calculate the difference between registered equity value (Sanson had $80,000 and Jeremy had $120,000) with the current market prices.

$240,000 - ($80,000 + $120,000) = $40,000

This $40,000 difference is called market value added (MVA).