The net assets of the Cocke and Mass partnership are undervalued $20,000 at the time when Cocke and Mass agree to admit Siff as a partner. In the past, Cocke and Mass shared profits and losses equally. The new partnership agreement calls for a ratio of 3:2:1 for Cocke, Mass, and Siff respectively. Siffs required investment does not reflect the fact that the assets are undervalued. 2
1. If the assets are sold at a $20,000 gain immediately after Siffs admission, the old partners will effectively lose A. 0. B. $3,333. c. $16,667. D. $20,000.
2. Assuming a net income of $30,000 for the first year of operations after Siff s admission, the partners will share the net income as follows: A. Cocke $12,500, Mass $12,500, Siff $5,000 B. Cocke $15,000, Mass $10,000, Siff $5,000 C. Cocke $15,000, Mass $7,500, Siff $7,500 D. Cocke $20,000, Mass $7,500, Siff $2,500