(Solution) - Brian and two other friends from college decide to form -(2025 Original AI-Free Solution)

Paper Details

Brian and two other friends from college decide to form a CPA firm specializing in forensic accounting. The three had worked for different Big Four firms for several years and accumulated a wealth of experience as well as a variety of other assets the new firm could use. After agreeing on a 2:3:1 capital and income ratio, the three listed what they intend to contribute to the new firm:
Brian: Cash ($12,000), office and computer equipment ($18,000), knowledge of potential client base. Jennifer: Cash ($15,000), research materials ($11,000), specialized forensic skills Eric: Payable to the firm ($10,000), extensive computer audit experience
Pro-forma capital balances under three formation scenarios appear below.

Required
a. In each scenario, identify the flow of bonuses or the amount and beneficiaries of goodwill recorded.
b. Discuss the relative advisability of the three scenarios, paying particular attention to their effects on the new firm's future profitability and leverage (or credit-worthiness).