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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

Admitting new partner

Brian Caldwell and Adriana Estrada have operated a successful firm for many years, sharing net income and net losses equally. Kris Mays is to be admitted to the partnership on September 1 of the current year, in accordance with the following agreement:

  1. a. Assets and liabilities of the old partnership are to be valued at their book values as of August 31, except for the following:
  • Accounts receivable amounting to $1,500 are to be written off, and the allowance for doubtful accounts is to be increased to 5% of the remaining accounts.
  • Merchandise inventor)' is to be valued at 546,800.
  • Equipment is to be valued at $64,500.
  1. b. Mays is to purchase 526,000 of the ownership interest of Estrada for 530,000 cash and to contribute 532,000 cash to the partnership for a total ownership equity of 558,000. The post-closing trial balance of Caldwell and Estrada as of August 31 follows:

Caldwell and Estrada

Post-Closing Trial Balance

August 31,20Y9

 

Debit

Balances

Credit

Balances

Cash 12,300  
Accounts Receivable 19,500  
Allowance for Doubtful Accounts   600
Merchandise Inventory 42,500  
Prepaid Insurance 1,200  
Equipment 67,500  
Accumulated Depreciation—Equipment   15,500
Accounts Payable   8,900
Notes Payable (current)   15,000
Brian Caldwell. Capital   55,000
Adriana Estrada, Capital   48,000
  143,000 143,000

Instructions

  1. a. Journalize the entries as of August 31 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 Brian Caldwell and Adriana Estrada.
  2. b. Journalize the additional entries to record Mays' entrance to the partnership on September 1. 20Y9.
  3. c. Present a balance sheet for the new partnership as of September 1. 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.

To record:  The journal entries as of August 31.

Explanation

Working Notes:

Calculation of Allowances for Doubtful Accounts

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

NewBalance=[($19,500-$1,500)×5100]=$900

Old Balance = $600

AmountIncreased=($900-$600)=$300 (1)

Calculation of Merchandise Inventory-

Book value of Merchandise Inventory = $42,500

Revalued Merchandise Inventory = $46,800

AmountIncreas

2.

To determine

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

3.

To determine

To prepare:  The balance sheet for the new partnership as of September 1, 20Y9.

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