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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Entries and balance sheet for partnership

On March 1, 20Y8, Eric Keene and Renee Wallace form a partnership. Keene agrees to invest 523.400 in cash and merchandise inventory valued at $62,600. Wallace invests certain business assets at valuations agreed upon, transfers business liabilities, and contributes sufficient cash to bring her total capital to $60,000. Details regarding the book values of the business assets and liabilities, and the agreed valuations, follow:

  Wallace's Ledger Balance

Agreed-Upon

Valuation

Accounts Receivable $19,900 $19.500
Allowance for Doubtful Accounts 1,200 1,400
Equipment 83,S00 55,400
Accumulated Depreciation—Equipment 29,800 55,400
Accounts Payable 15,000 15,000
Notes Payable (current) 37,500 37,500

The partnership agreement includes the following provisions regarding the division of net income: interest on original investments at 10%, salary allowances of $19,000 (Keene) and $24,000 (Wallace), and the remainder equally.

Instructions

  1. 1. Journalize the entries to record the investments of Keene and Wallace in the partnership accounts.
  2. 2. Prepare a balance sheet as of March 1, 20Y8, the date of formation of the partnership of Keene and Wallace.
  3. 3. After adjustments at February 28, 20Y9, the end of the first full year of operations, the revenues were $300,000 and expenses were $230,000, for a net income of $70,000. The drawing accounts have debit balances of $19,000 (Keene) and $24,000 (Wallace). Journalize the entries to close the revenues and expenses and the drawing accounts at February 28, 20Y9.

1.

To determine

Partnership

It is that form of organization which is owned and managed by two or more persons who invest and share the profits and losses according to a pre-determined ratio.

Forming a Partnership

While forming the partnership, the contribution of assets by partners are debited to the partnership assets account; whereas the liabilities of the partnerships are credited to the partnership’s liabilities account, and the net amount of the investments of partners are credited to the partners’ individual capital account.

To record:  The journal entry for K and W’s investment in the partnership.

Explanation

Cash and Merchandise inventory are assets of partnership and have increased it. So, these items are debited. K’s capital is a component of owners’ equity and it increases it. So, it has been credited.

In partnership, the non-cash assets are recorded at agreed value by the partners. The book value of accounts receivable was 19,900; but the agreed value of land was 19,500...

2.

To determine

To prepare: The balance sheet on March 1, 20Y8, on the date of formation of partnership.

3.

To determine

To provide: The journal entries to close the revenues and expenses and drawing accounts at February 28, 20Y9.

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