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Admitting new partner Musa Moshref and Shaniqua Hollins have operated a successful firm for many years, sharing net income and net losses equally. Taylor Anderson is to be admitted to the partnership on July 1 of the current year, in accordance with the following agreement: a. Assets and liabilities of the old partnership are to be valued at their book values as of June 30, except for the following: Accounts receivable amounting to $2,500 are to be written off, and the allowance for doubtful accounts is to be increased to 5% of the remaining accounts. Merchandise inventory is to be valued at $76,600. Equipment is to be valued at $155,700. b. Anderson is to purchase $70,000 of the ownership interest of Hollins for $75,000 cash and to contribute another $45,000 cash to the partnership for a total ownership equity of $115,000. The post-closing trial balance of Moshref and Hollins as of June 30 is as follows: Moshref and Hollins Post-Closing Trial Balance June 30. 20Y7 Debit Balances Credit Balances Cash 8,000 Accounts Receivable 42,500 Allowance for Doubtful Accounts 1,600 Merchandise Inventory 72,000 Prepaid Insurance 3,000 Equipment 180,500 Accumulated Depreciation—Equipment 43,100 Accounts Payable 21,300 Notes Payable (current) 35,000 Musa Moshref. Capital 120,000 Shaniqua Hollins. Capital 85,000 306,000 306,000 Instructions 1. Journalize the entries as of June 30 to record the revaluations, using a temporary account entitled Asset Revaluations. Debits and credits to the Asset Revaluation account are losses and gains from revaluation, respectively. The balance in the accumulated depreciation account is to be eliminated. After journalizing the revaluations, close the balance of the asset revaluations account to the capital accounts of Musa Moshref and Shaniqua Hollins. 2. Journalize the additional entries to record Anderson's entrance to the partnership on July 1, 20Y7. 3. Present a balance sheet for the new partnership as of July 1, 20Y7.

BuyFind

Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094
BuyFind

Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094

Solutions

Chapter
Section
Chapter 12, Problem 12.4APR
Textbook Problem

Admitting new partner

Musa Moshref and Shaniqua Hollins have operated a successful firm for many years, sharing net income and net losses equally. Taylor Anderson is to be admitted to the partnership on July 1 of the current year, in accordance with the following agreement:

a. Assets and liabilities of the old partnership are to be valued at their book values as of June 30, except for the following:

  • Accounts receivable amounting to $2,500 are to be written off, and the allowance for doubtful accounts is to be increased to 5% of the remaining accounts.
  • Merchandise inventory is to be valued at $76,600.
  • Equipment is to be valued at $155,700.

b. Anderson is to purchase $70,000 of the ownership interest of Hollins for $75,000 cash and to contribute another $45,000 cash to the partnership for a total ownership equity of $115,000.

The post-closing trial balance of Moshref and Hollins as of June 30 is as follows:

Moshref and Hollins

Post-Closing Trial Balance

June 30. 20Y7

 

Debit

Balances

Credit

Balances

Cash 8,000  
Accounts Receivable 42,500  
Allowance for Doubtful Accounts   1,600
Merchandise Inventory 72,000  
Prepaid Insurance 3,000  
Equipment 180,500  
Accumulated Depreciation—Equipment   43,100
Accounts Payable   21,300
Notes Payable (current)   35,000
Musa Moshref. Capital   120,000
Shaniqua Hollins. Capital   85,000
  306,000 306,000

Instructions

  1. 1. Journalize the entries as of June 30 to record the revaluations, using a temporary account entitled Asset Revaluations. Debits and credits to the Asset Revaluation account are losses and gains from revaluation, respectively. The balance in the accumulated depreciation account is to be eliminated. After journalizing the revaluations, close the balance of the asset revaluations account to the capital accounts of Musa Moshref and Shaniqua Hollins.
  2. 2. Journalize the additional entries to record Anderson's entrance to the partnership on July 1, 20Y7.
  3. 3. Present a balance sheet for the new partnership as of July 1, 20Y7.

Expert Solution

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.

To record:  The journal entries as of June 30.

Explanation of Solution

Working Notes:

Calculation of Allowances for Doubtful Accounts

Allowance for doubtful debt is to be increased to 5% of the remaining account.

NewBalance=[($42,500-$2,500)×5100]=$2,000

Old Balance = $1,600

AmountIncreased=($2,000-$1,600)=$400 (1)

Calculation of Merchandise Inventory-

Book value of Merchandise Inventory = $72,000

Revalued Merchandise Inventory = $76,600

AmountIncrea

Expert Solution

2.

To determine

To record:  The additional journal entries for the entrance of partner A into the Partnership.

Expert Solution

3.

To determine

To prepare:  The balance sheet for the new partnership as of July 1, 20Y7.

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