Finance Questions...Please help! 10 pts for best, most detailed answers.?

Question

Tom Rufus and Dave Hanson operate a plumbing company, with total owners' equity of $88,000. They each have a 50% interest in the business. The owners decide to invite Matt Valessi to join their company.

a) Matt is investing equally and will be one-third partner. What will be the amount of his investment?

b) What will be the total owners' equity in the company after Matt's investment?

c) Matt has only $11, 000 to invest in the firm, but Tom and Dave feel that he will bring customers to their company. They agree to give him a one-third partnership. What will be the total owners' equity in the company after Matt's investment?

d) What amount will each of the original partners have to transfer to Matt to make the partnership equitable?

Answer 1

It seems like there should be a little more info, because your textbook probably has a specific type of trasnaction in mind, and you can look at this several different ways...

a) Tom and Dave each have $44,000 in equity, so Matt will have to contribute $44,000 to be an equal partner.

b) Total Equity will be $132,000 (88,000 + 44,000)

c) If Matt can only put in $11,000, then total equity will be $99,000.

d) If Matt put in $11,000, and they want him to have $33,000 in equity, then they each need to transfer $11,000 to him. They could make him an equal profits partner without transferring the equity, so this question is throwing me off a bit, but they can transfer equity if they want to.

Answer 2

I can't see any difficults in these questions. Maybe I didn't catch something. Anyway, here are my guesses:

a) Matt has to invest  $44.000 to take third part of interest in the business.

b) The total owners' equity in the company will be $132.000, if Matt will invest $44.000.

c) If Matt has to invest only $11.000 to take third part of interest in the business, total owners' equity will form $99.000/ )))))

d) If Matt will invest only $11.000 to take third part interest in the business,  Tom and Dave must transfer $22.000 to him to make the partnership equitable. It seems that every of original partners have to share $11.000 with Matt.