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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 April 1, 20Y1, Whitney Lang and Eli Capri form a partnership. Lang agrees to invest $18,000 cash and merchandise inventory valued at $50,000. Capri invests certain business assets at valuations agreed upon, transfers business liabilities, and contributes sufficient cash to bring his total capital to $120,000. Details regarding the book values of the business assets and liabilities, and the agreed valuations, follow:

  Capri's Ledger Balance

Agreed-Upon

Balance

 
Accounts Receivable $45,700 $43,400  
Allowance for Doubtful Accounts 3,200 3,500  
Merchandise Inventory 31,500 28,900  
Equipment 89,500 63,400  
Accumulated Depreciation—Equipment 19,000 63,400  
Accounts Payable 23,400 23,400  
Notes Payable (current) 15,000 15,000  

Hr- partnership agreement includes the following provisions regarding the division of net income: interest of 10% on original investments, salary allowances of $36,000 (Lang) and $22,000 (Capri), and the remainder equally.

Instructions

  1. 1. Journalize the entries to record the investments of Lang and Capri in the partnership accounts.
  2. 2. Prepare a balance sheet as of April 1, 20Y1, the date of formation of the partnership of Lang and Capri.
  3. 3. After adjustments at March 31, 20Y2, the end of the first full year of operations, the revenues were $598,000 and expenses were $480,000, for a net income of $118,000.

The drawing accounts have debit balances of $40,000 (Lang) and $30,000 (Capri). Journalize the entries to close the revenues and expenses and the drawing accounts at March 31, 20Y2.

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 L and C’s investment in the partnership.

Explanation

Cash and Merchandise inventory are assets of partnership and have increased it. So, these items are debited. L’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 45,700; but the agreed value of land was 43,400...

2.

To determine

To prepare: The balance sheet on April 1, 20Y1, 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 March 31, 20Y9.

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