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A partnership was approached by a corporation that would like to acquire them by a stock...

A partnership was approached by a corporation that would like to acquire them by a stock acquisition. The partnership has no authorized stock, and the corporation does not want to pay cash for the partnership. The partnership is valued at $4,000,000 today. Reading the partnership agreement, you find that the partnership can be terminated at any time with the consent of the partners. They do not want to dissolve the partnership. The corporation very much wants to purchase the partnership. In your expansive knowledge of accounting, what would you suggest the partnership do, as well as the corporation to make this consolidation happen? The only solution involves consolidating the partnership and the corporation. How would you, the accountant, resolve this issue?

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Expert Solution

Partnership business only exists when all partners are giving their consent to carry on the business. But due to any disagreements between partners, incapacity of partners , death of a partner ,partnership business can be terminated. But it is just hold opposite for the corporation. Corporation have infinite life to carry on business. Perpetual succession is a most important feature of corporation . So it will be advisable to the partners of these partnership firm to get stability of income for a long time range, consolidation with the corporation proved good. Because after consolidation they will get the common stock of the company and get the substantial ownership rights and their will be no chance of sudden dissolution of the firm.

On the other hand it would be advisable to the corporation to go for the consolidation with partnership firm. If they will purchase the firm ,then there will be no immediate cash out flow of from the corporation  but they can revive their future earning by soundly operating newly purchased profitable partnership firm. Here, their assets will increased and side by side ownership securities increased without uplifting any borrowing from outside.

ekkarill92 answered 1 year ago
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