Incorporation of a Partnership

After successfully operating a partnership for several years, the partners have proposed to incorpo

rate the business and admit another investor. The original partners will purchase at par an amount

of preferred stock equal to the book values of their capital interests in the partnership and com

mon stock for the amount of the market value, including unrecognized goodwill, of the business

that exceeds book value. The new investor will make an investment at a 5 percent premium over

par value in both preferred and common stock equal to one third of the total number of shares the

original partners purchased. The corporation will acquire all the partnership’s assets, assume its

liabilities, and employ the original partners and the new investor.

Required

a. Discuss the differences in accounts used and valuations expected in comparing the balance

sheets of the proposed corporation and the partnership.

b . Discuss the differences that would be expected in a comparison of the income statements of the proposed corporation with that of the partnership.

*Indicates that the item relates to “Additional Considerations.”