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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

Recording partner's original investment

Hannah Freeman and Hugo Hernandez form a partnership by combining assets of their former businesses. The following balance sheet information is provided by Freeman, sole proprietorship:

Hannah Freeman Proprietorship

Balance Sheet

June 1, 20Y3

Cash   $ 65,000
Accounts receivable $125,000  
Less: Allowance for doubtful accounts 7,200 117,800
Land   215,000
Equipment $ 78.000  
Less: Accumulated depreciation—equipment 41,000 37,000
Total assets   $434,800
Accounts payable   $ 24,800
Notes payable   76,000
Hannah Freeman, capital   334,000
Total liabilities and owner's equity   $434,800

freeman obtained appraised values for the land and equipment as follows:

Land $320,000
Equipment 34,800

An analysis of the accounts receivable indicated that they allow ante for doubtful accounts should be increased to $9,500.

Journalize the partnership's entry for Freeman’s investment.

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 of F’s investment to the partnership.

Explanation

In partnership, the non-cash assets are recorded at agreed value by the partners. The book value of Land was 215,000; but the value of Land was appraised to 320,000.  Equipment was accepted at a value of $34,800. Moreover cash, accounts receivable, Land and equipment are assets of partnership and have increased it. So, these items are debited...

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