Assume the Partnership of Dean, Hardin, and Roth Has Been

question 51

Essay

Assume the partnership of Dean, Hardin, and Roth has been in existence for a number of years. Dean decides to withdraw from the partnership when the partners' capital balances are as follows: $\begin{array}{lrr}& \text { Capital } & \text { Profit and } \\\text { Partner } & \text { Balance } & \text { Loss Ratio }\\\hline\text { Dean } & \$ 60,000 & 40 \% \\\text { Hardin } & 15,000 & 30 \% \\\text { Roth } & 25,000 & 20 \%\end{array}$ An appraisal of the business and its property estimates the fair value to be $100,000. Dean has agreed to receive $64,000 in exchange for his partnership interest.
Prepare the journal entry for the payment to Dean in the dissolution of his partnership interest, assuming the bonus method is to be applied.

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Definitions:

Mispriced Stock

A stock that is selling for a price which does not accurately reflect its intrinsic value, either undervalued or overvalued.

FCFE Valuation Model

A method used to estimate the value of a company by discounting its expected free cash flows to equity holders at an appropriate risk-adjusted rate.

Discount Rate

The discount rate is the interest rate used to determine the present value of future cash flows in discounted cash flow analysis, reflecting the cost of capital or risk of the cash flows.

Required Rate of Return on Equity

The minimum rate of return that investors expect from their stock investments, considering the risk involved.